HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
MultiBank Group information and reviews
MultiBank Group
84%

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

What is Forex and how to trade on it?

The term Forex - also known as foreign currency trading, currency exchange or by its acronym FX - refers to Foreign Exchange or to transactions between currencies...

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...

The Essentials of Commodity Trading: A Beginner's Guide

Commodity trading, involving the buying and selling of raw materials and agricultural products, is a complex yet rewarding venture in the financial markets...

Earnings Season: What Are They And How To Trade On Them

While marketing campaigns and plans from the top management are good, nothing says "We are successful" as well as a positive quarterly earnings report...

Choosing the Right Financial Instrument to Trade

For any trader about to enter the markets, a crucial part of the process is deciding on a suitable financial instrument to trade on. Choosing the right market can help...

How to trade stocks and CFDs on stocks

We continue our series of articles on choosing a trading instrument. This time you will learn what CFDs on stocks are, how to trade them and how...

A brief article on Investing in Silver CFDs

Gold and Silver are precious metals that has been known to man since the olden days. Investing in Silver and Gold also dates back to prehistoric times...

Is it Easy to Learn Forex? A Comprehensive Guide to Mastering Forex Trading

Forex trading is a popular and potentially lucrative way to earn both active and passive income. However, it's essential to understand that learning forex is an ongoing process that doesn't depend on whether...

What is ECN/STP trading?

It is a broker's business model in which clients` orders are sent directly to one or several liquidity providers to be executed on their end. Liquidity providers include companies...

Why Choosing The Right Broker Is Critical

Forex trading is an equal opportunity vertical. There are no exams, no prerequisites, no prior experience needed to start trading. All you have to possess...

How Does Dollar-Cost Averaging Work?

Active trading can be stressful, time-consuming, and not yield the desired results. On the other hand, there are alternatives. You can look for an approach to investing that is less burdensome...

Forex vs. CFD: Which One is Better?

Probably, every trader has faced the abbreviation CFD. But if you ask what this means, in most cases, the answer is: it's something similar to Forex, only for stocks...

How to Invest in Stocks: A Beginner's Guide for Getting Started

A successful voyage of the Dutch East India Company ships brought great profits, but statistically, one sailing ship in three returned home - the others could not withstand storms and pirate raids...

Which Is the Best Forex Trading Course?

The world of markets and online trading has a number of particularities. Learning is a blessing. Knowledge is your driving force. Your personal improvement on an ongoing basis is an objective that ultimately aims to succeed in critical situations...

Federal Reserve System: What It Is And How It Works

The Federal Reserve System (Fed) is the most important money management organization in the United States. However, its influence is much wider, it has a strong impact on global economic growth...

Reading Forex Charts: Decoding Patterns, Indicators, and Informed Decisions

In the world of forex trading, understanding price movements is paramount. Forex charts serve as the canvas upon which traders analyze historical and current price data to make informed decisions...

If you invest in stocks

Having a portfolio which includes shares of roughly 20 different companies almost eliminates unsystematic risks. Thus, the portfolio risk with one share...

Demystifying the 60/40 Rule in Forex Trading: A Comprehensive Guide to Tax Implications

Forex trading, also known as foreign exchange trading, is a dynamic market where currencies are bought and sold globally. The primary aim of forex traders is to make profitable trades...

Understanding Copy Trading: A Comprehensive Guide

Copy trading, an increasingly popular strategy in the world of online trading, offers a unique opportunity for individuals to mirror the trades of experienced traders...

Unlocking the Secrets of Forex Candlestick Patterns

Forex candlestick patterns are the heartbeat of technical analysis in the foreign exchange market. These patterns visually represent price movements, offering traders a unique lens to analyze and forecast future price actions...

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%
Octa information and reviews
Octa
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.