What is insider trading?

Insider trading is the practice of buying and selling stocks, bonds, or other securities based on material or information that the general public doesn't have access to. Material information is defined as non-public (financial) information about a publicly traded company or security that would influence an investor to buy or sell securities.

When is insider trading illegal?

Insider trading is deemed illegal when the material information is still non-public and comes with harsh consequences, including potential fines and jail time. Material non-public information is defined as any information that could substantially impact that company's stock price. When Is Insider Trading Legal?

What happens if a hairdresser trades on a stock?

If the hairdresser takes this information and trades on it, that is considered illegal insider trading, and the SEC may take action. The SEC is able to monitor illegal insider trading by looking at the trading volumes of any particular stock.

Should insiders be able to trade freely?

However, the key point is that insiders have unfair access to some information and shouldn't be able to trade freely this way without disclosing it. Quick tip: Anyone can search the public EDGAR database by date, company, person, filing category, or location to get information on legal insider trades.