How to Research Insider Stock Trading

Corporate insiders often have access to information about the company they work for, which is not available to the general public. A savvy strategy for investors is to identify and mimic insider stock trading. If the insiders are buying their company's stock with their own money, that could be a sign that there is some good news about the company that is not yet known to the public.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Internet connection
• Computer
• Possible investment prospects

1. Identify the ticker symbol for the stock you're researching. If you don't know the ticker symbol of a company this is easy to find online. You can go to the company's Web site and this information will be available in the investor relations area. You can also look up the symbol on Yahoo! Finance or another financial Web site.

2. Go to the U.S. Securities and Exchange Commission Web site and access the Edgar database to find information about changes in stock ownership by the company's owners and executives.

3. Enter the ticker symbol and perform a search.

4. Click on a Form 4 in the html format.

5. Analyze the transaction, including the amount of shares bought or sold, what the shares were worth at the time, and when the transaction took place. Codes are used to represent what sort of transaction took place. An "S" indicates an insider sold the stock and "P" means an insider purchased the stock.

6. If the stock is being heavily bought or sold by the insiders you can use this as one piece of information to help you decide if the stock is a good investment or not.

Tips & Warnings

• The documents available at the Securities and Exchange Commission Web site are primary sources and the most up-to-date. Often a company will have these filings in the investor relations area of their Web site. This information can also be found on financial Web sites although it might be a little dated.
• Insider buying is more important than insider selling. Insiders often own a lot of their company's stock and sell to reduce their exposure to this stock. It is good portfolio management to limit your exposure to any one stock.
• Only companies based in the United States are required to make these filings with the Securities and Exchange Commission so you won't be able to get insider information about foreign companies in this manner.