Insider Trading, also known as insider Dealing, is an act associated with the financial market in which individuals with access to private information use that information to make personal gains, either illegally or ethically. This practice may have grave legal and ethical implications. We will look at the different forms insider trading, as well potential market effects as legal ramifications of individuals involved in these practices. In this article, all of the above components are explored in detail. These include its different forms as well potential impacts on markets as well any legal penalties faced by individuals who engage in such practices.
Definition of Insider Trading
Insider trade is defined as the purchase or sell of securities made by an individual who has material nonpublic knowledge about the company that they are trading. This may include board members, corporate executives and employees who have access confidential information which could affect their stock price.
Insider trading is a variety of forms
Insider trading traditional: this form of insider dealing occurs when the insiders trade material non-public company information.
Tipper Tippee Trading: A scenario in which an insider provides confidential information to an outside party. This person then sells this knowledge.
Front Running - Front running is when brokers execute trades based on client orders they know in advance, and then wait for clients to fill the order later.
Misappropriation - This occurs when an individual uses confidential information obtained from employment relationships or any other source for personal gains without the consent and knowledge of the parties involved.
Impact on the Financial Markets
Additionally, insider-trading could lead to price manipulating, market instability as well as losses by unknowledgeable traders.
Insider trading
Insider Trading is illegal in many jurisdictions. It can be punished with jail time and heavy fines. Authorities use surveillance methods including tracking trading pattern and investigating suspicious behaviour to detect offenders. To punish offenders, authorities can use fines or imprisonment as well civil liability and disgorgement of profit.