Definition
Insider trading refers to trading securities based on material, non-public information (MNPI). Illegal insider trading involves buying or selling based on confidential information that would affect stock price if public - like knowing about an acquisition before announcement. Legal insider trading is when company insiders trade their own stock following proper disclosure rules (Form 4). The SEC actively investigates and prosecutes illegal insider trading with penalties including fines and imprisonment. It's designed to ensure fair markets.
Example
A pharmaceutical executive buying stock before announcing FDA drug approval would be illegal insider trading. But the same executive buying stock through a pre-planned 10b5-1 plan, filed in advance, is legal.
FAQ
What is Insider Trading?
Buying or selling securities based on material, non-public information.
Why is Insider Trading important?
Insider Trading helps investors evaluate regulatory and make more informed decisions.