What it is
Insider trading is the illegal act of buying or selling securities by individuals who have access to material, non-public information about a company or its securities.
This practice is against the law since it allows certain people to profit unfairly. They do so by taking advantage of information that’s not available to everyone else.
Material information can include any undisclosed news that could heavily affect the price of a company’s securities once announced. One example is an unreleased financial report.
What it means for you
Insider trading can ruin public trust and affect the integrity of the financial markets. When cases like these come to light, they can discourage people from investing and give them the impression that the markets are rigged.
However, as an individual investor, it’s important to understand that there are laws that seek to prevent insider trading and other forms of investing fraud or scams.
Remember that anyone can become an insider if they gain access to material non-public information, whether directly or indirectly. Trading to profit from this secret information is when it becomes illegal.
It’s best to steer clear of anyone who offers “inside information” since it’s likely a scam. Even if it's true, acting on it would be illegal.
