Types Of Insider Trading - Insider Trading Does Happen

If you've ever wondered about the different types of insider trading and what exactly insider trading is, I have some answers for you. A general definition of insider trading is when someone with non- public knowledge, such as a companies executives or employees, makes a trade based on that knowledge. While it is legal for people who work at a certain company to buy and sell stocks from that company, the Securities and Exchange Commission, SEC, keeps a very watchful eye on these transactions to guard against insider trading.

If a top level manager or CEO wants to sell their companies stock they have to notify the SEC. This is because, for the most part, if a CEO is selling the shares from their own company it's likely that they have access to some information that doesn't look good for the company. The theory is that they shouldn't be able to profit, or avoid a loss, just because they have information that is not available to the general public.

You generally hear about the illegal form of insider trading, and usually when someone is going away to prison for it, but there are legal ways of doing insider trading. If a company employee with less than ten percent holdings in the company wants to buy or sell their companies securities, this is perfectly legal. Someone who has a more than a ten percent share in the company can also trade their companies securities, as long as they notify the SEC, but cannot make trades based on important information that they are privy to due to their employment with the company.

Lower level employees don't really have to worry about insider trading even if they trade the securities of their employer, simply because they aren't privy to any real sensitive information in the course of their employment.

Many people don't understand that they can't defend themselves against a charge of insider trading by simply saying they didn't know they were doing something illegal. It's expected that when you are in a position of knowing this type of non- public information that you also understand that to use that information to gain financially is an illegal activity.

The SEC has a full disclosure rule which states that if a corporation accidentally discloses non- public information they have to provide the same information to the general public. The SEC does have procedures in place that would allow the corporation to repair the damage done by a deliberate or accidental leak of insider information.

Despite what you may hear on your local nightly news, there are a few types of insider trading, and not all of them are illegal. It's a crime to use your position a company as a way for you to either make money on a securities transaction, or to avoid losing money by selling the stock of your company because you know there are troubled waters ahead.

Before you get involved in any type of stock trading, make sure you take some time to find out all the ins and outs, after all, this is your money that you're using so you want to be as informed as you possible can be.