Insider trading happens when people with possible access to non-public information about a company or corporation trade that company’s stocks or other securities. If this type of trading is done by corporate insiders in such a way that it doesn’t take advantage of non-public information, then insider trading in perfectly legal in most countries. However, if it does take advantage of non-public information, then it is illegal.

In the United States and many other countries, insider trading conducted by corporate officers, directors, key employees, and shareholders must be reported to the regulator or disclosed to the public, generally within a few business days from the day the trade occurred. There are many investors who follow the summaries of these insider trades with the high hopes that if they copy them they will make a profit.  While it may be “legal” to conduct insider trading as long as it isn’t based on non-public information, some investors believe that insiders have better insights into a corporation’s health and the insider trades they make contain important information about that corporation.

It is widely believed that the United States has the strictest laws against illegal insider trading. They also make the biggest and most serious effort in order to enforce those laws. However, most jurisdictions around the world have laws and rules regarding illegal insider trading.

“Insiders” are generally the company officers, directors, beneficial owners who claim more than ten percent of the securities in the company.  If these “insiders” make trades based on information gathered from non-public material, then it is considered a fraudulent and illegal trade.

The liability for violations of insider trading can’t be avoided by merely passing on the information in a quid pro quo arrangement. If the other person knows or should know that the information belonged to the company, then it is still illegal. The misappropriation theory says that anybody who steals company information from their employer and uses it to trade stock is guilty of insider trading.

It can be a very difficult task to prove someone is guilty of insider trading. This is because traders can hide behind offshore companies and other proxies. Despite that, more than fifty cases are prosecuted by the U.S. Securities and Exchange Commission each year. The U. S. is the leading country in prohibiting insider trading. Even as far back as 1909, the Supreme Court ruled that a corporate official who bought a company’s stock based on the fact that he knew the stock was about to go up in price committed fraud by buying and not disclosing his inside information.