Insider trading denotes to the trading of stock of a public company or securities of the company by people with privy to information of the company that is not yet made public. In some cases, the practice is unfair as it puts investors without access to such information at a disadvantage given that an investor privy to such information stands a better chance of making a profit than an ordinary investor. Insider trading by directors, corporate officers, and employees often aim at maximizing profits or avoiding losses. Insiders, in this case, involve any beneficial trade with a substantial amount of a company’s stock or securities. Additionally, insiders include directors, employees within the company who have the fiduciary duty to shareholders within the company. Insiders may also include persons who use non-public information to trade in shares as it falls under the violation of the contractual obligation of trust. Illegal insider trading is a situation whereby an insider who has privy information not yet public undertakes buying and selling. On the other hand, legal insider trading is whereby a director or employee engages in buying and selling of stock or bonds, but abides by the rules and regulations of the SEC, for instance, an insider buying stock with the expectation of good performance of the company over a long period.
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