Insider trading - How do insiders work?

Insider trading involves making trades based on information received. If the information is positive (for example, a merger of large companies), the insider will conduct buy trades. If the information is negative (for example, an as-yet unpublished earnings report), the investor will sell the securities.

The scheme of insider trading works as follows:

• The insider learns some important information;
• He makes a buy or sells trade until the information is officially published.

After the information is published, the price moves in the desired direction, so that the insider either increases his profits (when buying the stock) or fixes them and can later buy the stock very cheaply (when selling it).

In addition, insiders may share information with acquaintances, colleagues, or relatives or even sell information.

There are several signs of insider trading that a private trader may observe. Of course, they are not a guaranteed indication, but they may indicate that the trades may have been insider trading.

Let's look at a few such signs:

• A sudden, unexpected movement of quotes. If the chart has been showing a sideways trend for a long time and suddenly there is some movement for no apparent reason, it could indicate that someone found out significant news before the others.
• A sharp trend reversal for no apparent reason. If this happens, it is likely that someone is conducting a transaction based on insider information.
• The presence of unreasonably large transactions. Cases of risking big money without any certainty are rare. So the investor probably knows something.

Again, these "signals" are not guaranteed indicators of insider trading. However, if you observe something like this - there is a chance that an insider has entered the market.

In the next article, we will look at why insider trading is illegal.

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