Insider trading occurs when individuals such as executives, directors, employees, or major shareholders trade shares based on information that has not been made public. This type of information can include upcoming earnings results, mergers, product launches, regulatory decisions, or any major news that could influence the stock price. Using this information for personal gain is illegal because it gives certain people an unfair advantage over regular investors.
Not all insider trading is illegal. Insiders are allowed to buy and sell shares of their own company as long as they follow SEC rules and report their trades publicly through filings like Form 4. This type of trading helps investors understand how company leaders feel about the business. Illegal insider trading happens only when someone uses confidential information that others cannot access.
Regulators monitor insider trading to keep markets fair and transparent. When illegal activity is detected, individuals can face fines, criminal charges, or bans from serving in corporate roles. These rules help maintain investor confidence and protect the integrity of the financial system.
Insider trading rules ensure that all investors operate on equal footing. Fair markets depend on transparency, and preventing misuse of confidential information protects market trust.
Insiders include company executives, directors, employees, and shareholders owning more than 10% of the company’s shares. These individuals often have access to sensitive information before it becomes public. Insiders must follow strict reporting and trading rules to avoid unfair advantages and maintain compliance with securities laws.
Insider trading becomes illegal when someone trades based on material non-public information—meaning information that could influence the stock price and that the public does not yet know. This includes leaking tips to others or placing trades through friends or family. Regulators consider both the use of confidential information and the intent behind the trade when determining violations.
Regulators analyze trading patterns, monitor unusual volume before big announcements, and review reported insider trades in filings like Form 4. They also track communications, enforce blackout periods, and use surveillance tools across exchanges. Companies maintain internal policies, pre-clearance systems, and compliance programs to prevent misconduct.
A company executive learns privately that a major merger will double the company’s value. Before the announcement is made public, they buy large amounts of stock. This is illegal insider trading because they used confidential information to profit at the expense of other investors.
FinFeedAPI’s SEC API provides access to insider filings such as Form 3, Form 4, and Form 5, helping users track insider activity, monitor market behavior, and identify unusual trading patterns.
