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FAQ - Insider Trading

      What is insider trading? Is insider trading legal?

    The buying or selling of a security by company insiders who have access to material, nonpublic information about the security. Company directors, officials, or anyone with a stake of 10% or more in the company are all considered insiders. While some insider transactions are illegal as we have seen in the Martha Steward case, but most are considered legal. In fact, thousands of stocks bought and sold by insiders every day. Do the insiders have advantages over individual investors? Of course! Not only does insider trading exist, it is also quite profitable. This is the latest top insider list.

      What type of SEC filings is related to insider transactions?

    Form 4 - Statement of changes in beneficial ownership of securities.

      How timely is the information?

    Beginning in 2002, insiders are required to report their insider transactions within two business days of the date the transaction occurred. The more timely the information, the more valuable it is to investors. InsiderToday subscribers can get computer analyzed data within minutes of the filing. So you can act on the information timely before it reaches the public and drives the price all the way up.

      Is this kind of information freely available to the public?

    Yes. It is freely available on the Internet at But there are normally around 2000 filings each day and many of them are of no value to individual investors. It is very hard for an individual to digest the amount of information and still have the time to act on it. InsiderToday system analyzes the data and intelligently identifies valuable information in real-time.

      How valuable is insider trading information?

    If insiders are buying shares in their own companies, they usually know something that average investors do not. They might buy because they see great potential in the stock: imminent takeover, earnings surprise, big contracts, new drug approval, so on and so forth. One of the most successful investors, Peter Lynch, once said, "insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise."

      How is the performance of insider trading in general?

    Nejat Seyhun, a renowned professor at the University of Michigan found that when executives bought shares in their own companies, the stock tended to outperform the total market by 8.9% over the next 12 months. Conversely when they sold shares, the stock underperformed the market by 5.4%. To learn more about insider trading, you can read his book Investment Intelligence from Insider Trading.

      What can an individual investor benefit from insider trading information?

    There may be many ways an individual investor can benefit. These are the most notable benefits:

    • Pick winning stocks. Insiders spend tens of thousands dollars buying their company stock for good reasons. They know better than any one else about the prospects of their company. By smarlty following the insiders, you'll have a better chance to win.
    • Discover new opportunities. In investing, high concentration normally means high return potential and high risk. With more choices of quality stocks available to you, you can diversify your portfolio without sacrificing its quality. The result: reduced risk and high return potential. Using InsiderToday real-time insider data, you'll find new buy candidates every day.

    • Keep an eye on the stocks in your portfolio for insider activities and protect your investment. Although there may be many reasons behind insider selling, heavy selling of a particular stock by a bunch of insiders is not a good sign. If this happens to a stock in your portfolio, you better beware.

    • There may be bull markets at one time and bear markets at another, but when you follow the insiders, you could be always on the winning side.

      How do I interpret insider trading information?

    Rules of Thumb:

    • Insider buying is more important than insider selling. Insiders might have many reasons to sell, such as diversifying their portfolio. If insiders buy their company's stock, they simply expect the price to go up.

    • Market purchase is more important than private purchase. This is obvious. InsiderToday system identifies and highlights market purchase transactions, so investors can quickly recognize the significant ones.

    • Transactions by company officers are more important than those by directors or other significant owners. Officers, such as CEO, CFO, COO, run the day-to-day operations of the company, so they know better about their company than any one else. InsiderToday also highlights transactions made by officers.

    • Number of insiders. If two or more insiders are buying or selling a stock at the same time and in significant amounts, the signal is usually strong and clear.

    • Transaction amount. Transactions under $10,000, for example, usually have little value to us. All InsiderToday reports list transactions by their dollar values with the highest on the top; Users can also use the screener to filter out low-value transactions.

    • Average daily volume. A stock with few bid and ask offers is characterized by low liquidity, high spreads, and high volatility. Small changes in supply and/or demand can have a dramatic impact on its price. InsiderToday transaction screener has an Average Volume filter, among others.

    • While insider trading information may give you a good start, you still need to do your due diligence on a company before you make an investment decision. All information provided by InsiderToday is solely for informational purposes and is not a recommendation to buy, hold or sell any security.

      Is the insider data accurate?

    For the most part, yes. However, errors do occur in the filings occasionally. Common errors include:
    • Ticker symbols incorrectly spelled
    • Wrong share prices entered
    • Filings duplicated

    InsiderToday tries to identify all those errors and mark or correct them whenever possible.
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