Definition of insider trading
: the illegal use of information available only to insiders in order to make a profit in financial trading
First Known Use of insider trading
Financial Definition of 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.
Why It Matters
Some investors follow legal insider trading because they believe insiders have a better insight to the financial health of a company.
Meanwhile, illegal insider trading can lead to fine and even imprisonment for the guilty party.
INSIDER TRADING Defined for English Language Learners
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
Legal Definition of insider trading
: the illegal use of especially material inside information for profit in financial trading — see also tippee
Learn More about insider trading
Britannica.com: Encyclopedia article about insider trading
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