What is Insider Trading?
Let's find out Insider Trading meaning, definition in crypto, what is Insider Trading, and all other detailed facts.
To be accused of insider trading on the stock market is one of the most shameful offenses. A trade is considered to be insider trading when a person involved in the trade has some undisclosed private information that could influence the price of the stock in the future.
Therefore, it is not a legal practice because it is considered to be an unfair advantage for someone to have non-public information about the stock market. For instance, if a trader receives information that one company is planning to buy another company, he will have the advantage of knowing that the first company’s stock value will increase in the future.
The Securities and Exchange Commission (SEC) officially defined inside trading as “the 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.” The SEC is the main governing institution that regulates trading in the US and determines the occurrences of insider trading.
However, there are a few cases when insider trading is considered a legal practice:
- When a board member buys shares in the company he works in and reports it to the SEC.
- When the company’s CEO buys additional shares in the company and reports it to the SEC.
- When an employee weighs his stock options before buying them in the company he works in.
One of the most famous insider tradings happened in 1990, when William Jackson, a printing firm employee, and Brian Callahan, a stockbroker, were found guilty of exploiting stock information in Business Week magazine before it was given to the general public. According to the authorities, Jackson and Callahan each made over $19,000 in profit. They were fined $37,445 and forced to return personal earnings.
Insider trading can happen in the cryptocurrency world as well but it is less heavily regulated than it is with the stock market. If a whale announces his intention to sell a large number of his holdings, for example, it can be interpreted as an indication that the token's price would decrease. Though it is not likely that he’ll be accused of insider trading.