Insider trading is a term that most investors have heard and usually associate with illegal conduct. But Insider trading is more extensive than you think as it’s a term that can actually include both legal and illegal conduct.
The legal version is when corporate insider’s officers, directors, and employees buy and sell stock in their own companies. When corporate insiders trade in their own securities, it’s then that they should report their trades through the various files that insiders must file to financial regulators.
One such regulator is that of the Securities and Exchange Commission (SEC), enforced by the United States securities law. It has rules to protect investment from the effects of insider trading.
But when Insider trading is illegal, it occurs when someone knows important but secret information about a company and then trades that company’s securities. From their stocks, bonds and call options so to gain an advantage when the stock price moves after the information is released.
Insider tipping is also illegal. It means telling others about secret stock price moving information. Financial regulators also oppose both trading on and tipping inside information.
The insider trading laws apply to market moving information not only about a company you work for but also about any company you may know through a special or personal relationship. An example would be through a family member who works for that company, or through a vendor, supplier, or client of that company.