Insider trading

Insider trading is the trading of a corporation's stock or other securities (e.g. bonds or stock options) by corporate insiders such as officers, key employees, directors, or holders of more than ten percent of the firm's shares. Insider trading may be perfectly legal, but the term is frequently used to refer to a practice, illegal in many jurisdictions, in which an insider or a related party trades based on material non-public information obtained during the performance of the insider's duties at the corporation, or otherwise misappropriated.

All insider trades must be reported in the United States. Many investors follow the summaries of insider trades, published by the United States Securities and Exchange Commission (SEC), in the hope that mimicking these trades will be profitable. Legal "insider trading" may not be based on material non-public information. Illegal insider trading in the US requires the participation (perhaps indirectly) of a corporate insider or other person who is violating his fiduciary duty or misappropriating private information, and trading on it or secretly relaying it.

Insider trading is believed to raise the cost of capital for securities issuers, thus decreasing overall economic growth.