Insider trading - what is it and what are the risks?

Trillions of dollars circulate in the world's financial markets. From time to time large deals with the participation of global investment giants occur or key news is released by state authorities. These events have a significant impact on the movement of stock prices, currency pairs, and raw materials. However, some people learn about the hot news before others, which makes this type of stock price manipulation as insider trading possible.

"He who owns the information owns the world," is the legendary quote of the great investor Nathan Mayer Rothschild. And indeed, whoever gets the information first can operate it to their advantage. However, it provides an opportunity for market manipulation, which is why insider trading is considered a violation of exchange rules. In this series of articles, we will talk in more detail about what this type of manipulation in the markets is, what the characteristics are, and consider legendary cases.

What is insider trading? Who is an Insider?

An insider is a person who has access to classified, confidential, information that is inaccessible to most people. When applied to the financial markets, insiders can be:

• Board members of large companies or commercial banks;
• Politicians and government officials;
• Representatives of national banks or state financial commissions;

There are also so-called "occasional" insiders. These can be ordinary employees of companies who happen to hear important information or relatives of top company executives or influential politicians.

Insider trading is the trading that insiders do. Based on their information, they can make certain transactions in the financial markets, and with large sums of money.

In the next article, we will look at how insiders work.

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