What is an insider transaction?

An insider transaction is the buying or selling of a company's securities (such as stocks or options) by individuals who have access to nonpublic information about the company, including officers, directors, and employees. Insider transactions are legal and are not to be confused with illegal insider trading.

What is insider trading?

The key definition of insider trading stems from the word trading, which constitutes an action. Here’s a hypothetical example. Jane is an executive at XYZ Company. She knows that the company is going to acquire another company and shares that information with family and friends before it becomes public information.

Is insider trading harmful?

As it relates to insider trading, the definition of “insider” expands even more. In fact, any individual who buys or sells shares of a security based on inside information can be guilty of insider trading. What Harm is Being Done Because of Insider Trading? The first reason that insider trading is harmful relates to the insider’s fiduciary duty.