Insider Trading

Insider trading occurs when people buy or sell a company's stocks or bonds based on important information that is not available to the public. This practice raises significant concerns because it can create unfair advantages for some investors. It undermines trust in the financial markets, as those with insider knowledge can profit while others remain unaware of the situation. Many people believe this unfairness damages the overall integrity of investing.

What is insider trading?

Insider trading refers to the unlawful practice of buying or selling financial instruments such as stocks or bonds using important information that is not yet available to the public. It generally involves people in trusted positions, including company executives, managers, or employees, who have access to confidential corporate data. Understanding the insider trading meaning is essential because regulations are designed to keep the markets fair, ensure all investors have equal access to information, and protect overall market integrity and trust.

How does insider trading work?

Insider trading functions through a sequence of unethical practices where privileged access to sensitive information is exploited for personal gain. Here is how the process typically unfolds:

• Information access: Individuals like senior executives or employees may obtain confidential insights—such as impending mergers, financial disclosures, or regulatory approvals—that are not yet available to the public.
• Making the decision: Using this unpublished data, the insider makes informed choices about whether to purchase or sell company securities.
• Executing trades: Transactions are carried out, sometimes via intermediaries like relatives or offshore accounts, to disguise the insider’s connection and avoid suspicion.
• Profit realisation: Once the information becomes public and the market reacts, the insider benefits from price movements—either by securing profits or avoiding losses.