What is Insider Trading?
The term “insider” combines various types of information that are important but non-public and, moreover, are often intended exclusively for official use. It is believed that the disclosure of insider information is unacceptable, and even if it does happen, it entails noticeable consequences. In the economic sphere and in the context of financial markets, such events impact the movement of quotations of the securities of the company, the insider information about which has been disseminated.
Insider trading is often used by participants in different areas of the financial market, including currency, stock or cryptocurrency. If you want to learn about the different techniques of this trade, we recommend that you go through Forex training.
The most general description of insider information, insider trading and who an insider is will not be enough to understand all the subtleties of this topic. Therefore, we propose to discuss this topic in more detail.
What is inside information?
As you know, each organization regularly publishes data on its success for a certain period. These are financial reports and various public presentations.
Insider information can be called the data that has not yet been published by company representatives, and no one from the general public owns it. This is any hidden information, the publication of which can change the course of an investment asset.
As a rule, it is the second and not the first variant of the data that affects the movement of the company’s quotes on the stock market.
It is not for nothing that they say that the one who owns the information owns the world. Possession of inside information allows market participants to plan their trading strategies ahead of time and make deals before others have reached them. These people are called insiders. About them in the next part of our article.
Who can be called an insider?
Since we are analyzing insider information from the point of view of its manifestation in financial markets, we will talk about an insider as a participant in the exchange.
According to the Securities and Exchange Commission of America, an insider is a person who owns at least ten percent of the shares of one of the companies and takes part in the processes of its management. Since the insider is involved in making various fateful decisions for the company, he owns classified information. It can be any commercial or official secret. In addition, there are cases when employees or other persons associated with the company sign insider information nondisclosure papers.
Insiders are:
- managers
- lawyers
- bank employees
- top managers of the company
- representatives of news agencies
- personnel close to management
- large shareholders
- representatives of power structures
- representatives of the special services
- insurance organizations
It should be noted that each of the lists has a clear advantage over other participants in the financial market. But, unfortunately, smaller holders suffer from insider trading, and large-scale holders or groups earn huge amounts of profit in this way.
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