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
type of SEC filings is related to insider transactions?
Form 4 - Statement of changes in beneficial ownership of securities.
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
this kind of information freely available to the public?
Yes. It is freely available on the Internet at http://www.sec.gov.
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.
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."
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.
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:
do I interpret insider trading information?
- 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.
Rules of Thumb:
the insider data accurate?
- 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
- 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.
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.