Insider Trading

The buying or selling of securities (usually a stock or an instrument with the stock as an underlying, such as an option) by someone who has knowledge of material (which means information that can significantly impact a stock’s price) information, usually serving as the high level management of the company (hence, an insider) or affiliated with a member of the management.

Insider trading can be legal and illegal. When someone buys or sells a stock with knowledge of information that is not yet released but will have a signficant impact on the stock price (for example, an unannounced merger deal), it is illegal and subject to investigation.

However, insiders can trade in the stock of the company they work at, though they have to report their holdings to the SEC.