Insider Trading is the use of material, nonpublic information about a company to make investment profits. It is the illegal practice of buying and selling stocks on the basis of information gained through unethical means or through secret contacts with someone inside the company, unavailable to other investors or the general public.
Types of Insider Trading
There are basically two types of these tradings and they are -
- Illegal trading
- Legal trading
Though insider tradings are usually deemed illegal, there are legal ones and they are termed, corporate insiders. It is legal when the SEC (United States Security and Exchange Commission) is informed about the trade well ahead. Legal insider trades often occur when the CEO (Chief Executive Officer) aims to buy back the company shares after selling them out.
Parties in Insider Tradings
There are three different parties involved in every insider trade and they are listed below -
- The company (business entity whose shares and securities are at stake)
- The tipper (insider who has the information and willing to sell it to outsiders for their individual gain)
- The tippee (the outsider who pays to get benefited by the insider intel)
Use of the Term in Sentences
- People in power have been persecuted for insider trading time and again over the years.
- Insider trading would be legal as long as it conforms to the SEC regulations.