Insider Trading
Insider trading has dual meanings: a legal and an illegal definition.
Legally, insider traders are corporate insiders such as corporate officers, directors, and employees who buy and sell stock in their own companies. When these employees transact trades in the company’s stock, it must be reported to the Securities and Exchange Commission (SEC).
This information becomes public knowledge.
Illegal insider trading, which is in the news more than legal insider trading, refers to the buying and selling of security that is in breach of a fiduciary duty or other relationship of trust and confidence, when the person transacting the trade possesses material, nonpublic information about the security.
Violations may include “tipping” information from a corporate insider to an external party. The securities are then traded by this party, who usually benefits. The person who gives the information may be accused of misappropriating the information.
One popular Hollywood movie that depicted insider trading was Wall Street with Charlie Sheen and Michael Douglas. Douglas tipped inside information to Charlie Sheen, his stockbroker, who then traded on the information. He was able to profit from the information. Using products like the Elemental Trader will help you avoid the inside trading route.
Those convicted of insider trading may face jail time and an expulsion from securities industry.