insider trading

noun
Updated on: 18 Nov 2017

Definition of insider trading

:the illegal use of information available only to insiders in order to make a profit in financial trading

Recent Examples of insider trading from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'insider trading.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of insider trading

1966


Financial Definition of INSIDER TRADING

insider trading

What It Is

Insider trading refers to the trading of securities by corporate insiders such as managers or executives.

How It Works

Insider trading can be legal or illegal depending on if the information used to base the trade is public.

Individuals who engage in illegal insider trading attempt to benefit from trades based on information about a company not yet made public. For example, an executive of Company XYZ who purchases shares of the company based on a pending merger announcement is engaging in illegal insider trading.

However, once Company XYZ has announced the merger publicly, insiders may legally trade the shares based on the information.

Insider transactions must be reported to the Securities and Exchange Commission (SEC) via Form 4.

Why It Matters

Some investors follow legal insider trading because they believe insiders have a better insight to the financial health of a company.

For example, a CEO buying shares of his company conveys confidence in the future of the business.

Meanwhile, illegal insider trading can lead to fine and even imprisonment for the guilty party.


INSIDER TRADING Defined for English Language Learners

insider trading

noun

Definition of insider trading for English Language Learners

  • finance : the illegal activity of buying and selling a company's stocks while using secret information from a person who works for the company


Law Dictionary

insider trading

noun

legal Definition of insider trading

:the illegal use of especially material inside information for profit in financial trading — see also tippee

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