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How to Know if Insider Trading is Legal

Insider trading is clearly defined by the rules that govern stock transactions. It is possible to trade on information obtained about a company under some very strict constraints. Any other circumstances of trading based on inside information are illegal.

Instructions

    • 1

      Buy or sell stock in the company that you work for. Trading stock, either buying or selling shares, in your company is considered the only legal form of insider trading. This type of transaction must be reported to the SEC (Security Exchange Commission) by filing forms that disclose the insider trading aspects of the trade.

    • 2

      Trade stock in a company that you do not work for based on information obtained from someone that has more intimate knowledge of the workings and internal information of a company. If you obtain privileged information on a company that causes you to buy or sell stock, you have committed a crime. This type of insider trading is illegal.

    • 3

      Sell or buy stock based on a well-established plan that was created prior to obtaining information that is privileged and confidential may be considered legal. This situation will be determined by a court if there is a question about whether you have traded on insider information.

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