What’s an Insider Trade? (and What Could it Mean for Your Portfolio?)
If you’ve heard of insider trading, you may have wondered if it’s legal, or you may have thought it sounds too complicated to integrate into your stock trading strategy.
With the right information and the right insider trading partner, it can be simple! Let’s start from the beginning, so you’ll have a good understanding of what insider trading is.
The Definition of Insider Training
Imagine that you have a secret. Maybe it’s about a surprise birthday party for your best friend, or perhaps it’s the answer to tomorrow’s math test. Now, think about how powerful that secret makes you feel. Insider trading is kind of like that, but it happens in the world of business and stocks.
Stocks are pieces of a company that people can buy and sell. When you own a stock, you own a small part of that company. Companies like Apple or Nike have stocks that people trade on stock markets.
Insiders are people who work for a company or have special information about it that most people don’t know. This information could be about new products, big changes, or other important news that could affect the company’s stock price. If insiders use this secret information to buy or sell stocks and make money, that’s called insider trading.
Why is Insider Trading a Big Deal?
Think about playing a game where some players know the answers ahead of time—and they let you in on the information they have.
Many people will tell you that insider trading isn’t legal; however, insider trades are published every day by the SEC. The information is public domain information and can be accessed by anyone.
What keeps “regular Joes” from using that information is a lack of time, a lack of information about where to find it, and not knowing what to do with the data.
To those people who don’t know how to find insider trades, or what to do with that data, insider trading can feel unfair. But to those with the right partner, insider trades can feel like opportunities.
View Insider Trades in a Different Light
Insider trading has gotten a bad reputation, and news headlines haven’t helped. That’s why when an insider trade does occur, it must be reported right away to the SEC. When everything is done legally, insider trades are good things. Here’s why:
Market Efficiency, Heightened
Insiders often know more about their companies than anyone else. When they trade based on this information, it can help the stock market reflect the true value of a company more quickly. This can be good for investors because they get a clearer picture of what a stock is worth.
Hard Work, Rewarded
Insiders work hard to gather information and make decisions for their companies. Some people think they should be able to benefit from their knowledge and hard work. It’s similar to how students study hard for exams and deserve to get good grades.
Innovation, Encouraged
If insiders can make money from their knowledge, they might be more motivated to come up with new ideas and improve their companies. This can lead to more innovation and growth in the business world.
What Qualifies as an Insider Trade for Insider Trading Alerts?
When a corporate executive buys a significant portion of their company’s stock for their personal portfolio (as opposed to taking stock options as part of an employee benefits package or severance package), and it’s reported to the SEC, that transaction is picked up by our screener.
This is what we consider a legitimate insider trade.
That trade is then analyzed, along with the company’s trade history, to determine if we believe it will result in a stock price increase.
Our algorithm and screening process might be complicated, but the result for you is simple—a list of insider trade alerts at the end of every trading day so you can decide if any of those stocks are worth buying at the next open.
We’ll offer our expertise and show you what’s worked for us. The rest is up to you!
