When it comes to financial markets, few phrases carry as much intrigue and controversy as "insider trading." The term itself conjures images of Wall Street power players engaging in illicit activities behind closed doors. But what exactly is insider trading, and is it always illegal? Let's delve into this topic and debunk some common misconceptions.

What Is Insider Trading?

At its core, insider trading revolves around individuals known as "insiders." These insiders are typically individuals who have access to valuable non-public information about a corporation or own stock representing more than 10% of a firm's equity. In simpler terms, they are key players within a company, often including directors and high-level executives.

One key takeaway is that insiders are not inherently breaking the law by virtue of their status. In fact, they are legally allowed to buy and sell shares, both of the company they work for and its subsidiaries. However, there's a crucial caveat – these transactions must be registered with the Securities and Exchange Commission (SEC) and are typically done with advance filings. The details of these transactions are publicly accessible through the SEC's EDGAR database.

Legal Insider Trading

Legal insider trading is more common than you might think. Examples of such transactions include when a CEO buys back shares of their own company or when employees purchase stock in the company where they are employed. These actions are subject to regulatory oversight, and the information is disclosed to the public. Notably, these transactions can influence stock prices, especially if a CEO makes substantial purchases, as seen with Warren Buffett's actions within Berkshire Hathaway.

Illegal Insider Trading

The infamous form of insider trading that has garnered widespread attention and condemnation is the illegal use of non-public material information for profit. Importantly, this illegal activity is not restricted to corporate executives but can involve anyone privy to non-public information, including friends, relatives, or even complete strangers.

To illustrate, imagine a scenario where a CEO inadvertently discloses their company's quarterly earnings during an ordinary haircut appointment. If the hairdresser, who isn't an insider, uses this information to trade stocks, it qualifies as illegal insider trading. The SEC is tasked with monitoring these activities and often does so by scrutinizing trading volumes. Unusual increases in trading volumes when no corresponding public news is available serve as red flags, triggering investigations to identify and penalize the culprits.

Insider Trading vs. Insider Information

One common misconception is conflating insider trading with insider information. Insider information refers to non-public material knowledge about a publicly-traded company that can provide an unfair advantage to a trader or investor. For instance, if a company's vice president overhears a private conversation revealing poor financial performance before an earnings release, sharing this information with a friend who subsequently trades on it constitutes insider information. However, if the trading occurs after the earnings are public knowledge, it is not considered illegal.

In summary, insider trading is a multifaceted concept. Legal and regulated forms of insider trading exist, which are essential for corporate governance and investment activities. In contrast, illegal insider trading involves using undisclosed material information for personal gain, and it is this activity that regulators vigorously police. Understanding the distinction between these two is vital in dispelling common misconceptions about insider trading and its legality.

Tickeron's Offerings

The fundamental premise of technical analysis lies in identifying recurring price patterns and trends, which can then be used to forecast the course of upcoming market trends. Our journey commenced with the development of AI-based Engines, such as the Pattern Search Engine, Real-Time Patterns, and the Trend Prediction Engine, which empower us to conduct a comprehensive analysis of market trends. We have delved into nearly all established methodologies, including price patterns, trend indicators, oscillators, and many more, by leveraging neural networks and deep historical backtests. As a consequence, we've been able to accumulate a suite of trading algorithms that collaboratively allow our AI Robots to effectively pinpoint pivotal moments of shifts in market trends.