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Insider Trading

Insider trading refers to the buying or selling of a publicly traded company’s stock or securities by individuals with access to non-public, material information about the company. Insider trading is illegal when the information is used to gain an unfair advantage, violating securities laws. Legal insider trading, however, occurs when corporate insiders (such as executives) trade stock within the bounds of regulatory guidelines and disclose their trades to the public.

Example

An executive at a tech company sells a large number of shares before the company announces poor earnings results. This would be considered illegal insider trading if based on non-public information.

Key points

• Refers to trading based on non-public, material information about a company.

• Illegal insider trading violates securities laws and can result in severe penalties.

• Legal insider trading requires disclosure and adherence to regulations.

Quick Answers to Curious Questions

Insider trading is illegal when individuals trade based on non-public, material information to gain an unfair advantage in the market.

Legal insider trading occurs when corporate insiders disclose their trades and follow regulatory guidelines, while illegal insider trading involves using non-public information.

Regulators monitor suspicious trading activity and investigate cases where trading patterns align with the release of non-public information.