HFM information and reviews
HFM
96%
Octa information and reviews
Octa
94%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%

Insider Trading: What It Is, What It Isn't and Is It Worth It?


The term “insider trading” has been popping up in the headlines recently. There’s talk of big-name politicians and business tycoons being investigated for it. Almost sounds like all the cool kids are doing it these days. So, what is insider trading exactly and why is it illegal?

What is Insider Trading?

The definition of “insider trading” that lies at the core of applicable laws is “buying or selling a security in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security.” Let’s break all this legalese down into easily understandable parts.

First, let’s start with the person in the relationship of trust — the Insider. A person is named an “insider” if their affiliation with a business makes them privy to information that has yet to be disclosed to the public.

Insider information is considered “material” if it’s the sort of intel that could and most likely would affect a company’s stock price. Examples include a pending merger, a major investment, a surprising earnings report, an announcement about a government contract, etc. Insiders carry a fiduciary responsibility to their companies and shareholders. Fiduciary means duty of loyalty or a duty of care. Therefore, the Insider using material information to their personal benefit puts them in direct conflict of interest with those they have a duty to.

Is All Insider Trading Illegal?

You may be surprised to find out that not all insider trading is punishable by law. Here are some examples of insider trading that don’t carry any sort of legal repercussions:

So, when does the trade cross-over into illegal territory? It’s when the transaction (like a purchase or a sell-off of stocks) is influenced by knowledge that only a small group of people inside the company would know about. This sort of information would give the insider an unfair advantage to either profit from or avoid a loss associated with an upcoming stock price shift before anyone else on the market.

Every once in a while you will see insider trading cases where people outside the company use the information obtained from those on the inside to profit. In those instances both the “tipper” and the “tippee” are legally culpable. Such was the famous 2001 case of insider trading involving Martha Stewart.

Stewart, a famed American businesswoman and TV-personality, sold all of her shares of the biotech company, ImClone. Just two days later, ImClone announced that the FDA had not approved the company’s primary pharmaceutical product, Erbitux. Their stock dropped 16% immediately after.

Selling her shares prior to the announcement and the subsequent drop saved Stewart from a $45,673 loss. The investigation proved that Martha was acting on a tip-off from ImClone’s CEO at the time, Sam Waksal. Both were tried and convicted of insider trading. Waksal got 87 months in prison and a $3 million fine. Ms. Stewart was sentenced to 5 month in prison, a $195,000 fine and a requirement to step down as CEO of her company.

Recent Insider Trading Cases

But don’t think that major penalties like the one we’ve just discussed forever deterred people from attempting this kind of machinations. Far from it. In fact, let’s take a look at the most recent examples of insider trading. The US Justice Department has just closed their investigation into the actions of senators who engaged in large-scale trading while privy to sensitive information. All three made sizable sales shortly before the recession hit the markets due to the coronavirus pandemic.

Democratic Sen. Dianne Feinstein of California sold millions of dollars worth of stocks as a sitting member of the Senate Intelligence Committee. Fellow Senator, republican representative Kelly Loeffler, whose husband is the chairman of the New York Stock Exchange, committed a similarly suspicious trade. Loeffler dumped a large number of stocks shortly after she received a private briefing from health officials on the emerging coronavirus in January.

It’s worth noting that Senators are specifically barred from using non-public information to make decisions about stock trades under the 2012 STOCK Act. The Justice Department investigated both cases but ultimately declined to press charges for insider trading as both Senators claimed other parties (family members and advisors) made trades on their behalf.

Meanwhile in Brazil, Marcos Molina — the CEO of a major local meatpacker Marfrig — is facing accusations of insider trading from the country’s securities regulator — CVM. CVM discovered that Molina bought Marfrig shares prior to the public announcement of a deal with Leucadia National Corp to take a 51% stake in National Beef. Marfrig’s shares rose nearly 20% after the transaction was announced.

Insider Trading and Olymp Trade

Needless to say, Olymp Trade does not condone illegal insider trading nor do we allow it on our platform. We do, however, support and facilitate thorough research and market analysis that can serve a trader just as well. For example, you can take advantage of market Insights that Olymp Trade offers. When on the platform, go to the navigation bar and look for Insights. A click or a tap will take you to a section with a newsfeed of intel that has potential to affect your trading choices.

From there you can go to the Assets section and find short-term price forecasts and trend analysis on all the assets you can trade with Olymp Trade. Pretty neat, huh?

And if that’s not enough (is it ever?), you can always check the Blog for tips. Our Daily and Weekly Analytics will keep you well informed and prepared for whatever the future holds. And don’t neglect the Fundamental Analysis, because that’s where all the long-term insights are.


RELATED

Ten Reasons You Should Learn To Read Price Action

As Charles Dow stated, the price is an excellent market data storage. It is the price that contains all the necessary information, and its movements demonstrate...

Short-term trading: Features and Tips

Currency speculations on Forex are short transactions ranging from a few minutes to a month, based on technical and news analysis. In contrast to medium...

How to Trade During the US Presidential Election?

Unless you've been hiding under a rock for the past year, you've probably heard, read, or participated in some heated discussions about the US presidential race...

Choosing a trading instrument: how to trade currency pairs

Early on the path to becoming a trader, every beginner must determine what to trade and how. This choice should be made based on the desired goals...

Everything You Need to Know About Cryptocurrencies

The concept of money as we know it has evolved in recent years from purely physical money to a combination of the physical; digital representations of physical money...

7 Common Investment Myths That You Probably Believe

The reason why the investment market is so unique is that almost everyone knows what it is, and almost no one understands how it works. It gets even worse. You see since it’s so popular in popular culture/cinematography, a lot of people have illusory scenarios of how this should work.

Crypto rading for Beginners: Best Strategies and Patterns

Today, there are more than 19,000 cryptocurrencies in existence and counting. On the one hand, crypto trading opens up huge opportunities. On the other hand, such a wide variety can...

IronFX: Leverage in Forex. Complete Guide

Leverage is simply borrowed funds that traders use to trade. In other words, it refers to the ability that traders have when opening an account with a forex broker...

Octa broker: leveraging AI to revolutionise trading and investments

AI has already made a profound impact on the financial markets. Its ability to predict trends, execute trades swiftly, and manage risk is transforming investment strategies at its core.

Q2 2022 Earnings Season Explained

Earnings season is a few weeks when most public companies share their quarterly performance in their earnings reports. It takes place every three months...

The origins of Forex

The modern international currency trade is only 42 years old, but in 2019 this market reached a daily turnover of $6.6 trillion (the estimate for 2020 is $10 trillion!)...

Efixxen: Next-level trading with versatile tools and impressive industry-leading technology

Efixxen is your one-stop place to sharpen your trading edge with our competitive conditions tailored to your unique trading style and preferences. Each trader can unlock endless trading possibilities thanks to our next-generation tools...

Investing in the stock market as a beginner

Historically, investing in stocks has been the best way to earn, increase savings, combat inflation and make sure your money is working for you. However, the sheer price of company stocks...

What Are Commodities and How to Trade Them?

Since the beginning of human civilization, commodities have been a vital investment asset. In short, a commodity is a basic good or raw material that people buy and sell...

What is a broker & what does it do?

The term "broker" is used in various spheres, such as in real estate, insurance, mortgage, etc. However, we mostly hear this word when talking about...

What Is A Blockchain Bridge?

Today, Bitcoin and other cryptocurrencies dominate the discussion in finance and on Wall Street, but what makes these emerging assets so valuable is the blockchain...

How to Become a Professional Trader?

After learning more about the world of trading and getting real money from your trades, you might start thinking about becoming a professional trader. But what makes a professional trader?

Moving Averages: Unveiling Trends and Price Patterns

Moving averages essentially create a single continuous line that represents the average closing price over a specified timeframe...

The Impact of Social Media on Trading

The paper seeks to illuminate the pros and cons of social media's influence on trading and how important it is to be a financially literate trader. How can a trader benefit from social media?

Why Trade Forex: All around Forex Trading

It is widely known that forex is the most traded market in the world so once someone understands its benefits, it will become easier to understand why they need to trade forex...

MultiBank Group information and reviews
MultiBank Group
84%
XM information and reviews
XM
82%
FP Markets information and reviews
FP Markets
81%
FXTM information and reviews
FXTM
80%
AMarkets information and reviews
AMarkets
79%
BlackBull information and reviews
BlackBull
78%

© 2006-2024 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.