GLOSSARY // Fundamentals
Insider Trading
Insider trading covers two very different things: the legal buying and selling of company stock by its own officers, directors, and large holders, disclosed on Form 4 within two business days, and the illegal act of trading on material nonpublic information (MNPI), whether by an insider or anyone they tip.
The legal kind is a data source. Open-market insider buys, especially clustered across multiple executives, have historically preceded above-market returns because insiders know the business best. The illegal kind is an SEC enforcement matter: trading ahead of an unannounced merger, or passing deal details to a friend, draws disgorgement, fines, and prison regardless of profit size.
Congressional stock trades sit in their own disclosure regime under the STOCK Act, with members required to report trades within 45 days. StockTools tracks both congressional trades and corporate insider filings free.
Legal: a CFO sells 10,000 shares under a 10b5-1 plan adopted six months earlier, files a Form 4, and nobody blinks. Illegal: an employee learns his company will be acquired at a 40% premium next week and buys 500 call options for $12,000 that become worth $190,000 on announcement day. The SEC's surveillance flags exactly this pattern, unusual options volume before deals, and settlements routinely exceed the profit several times over.
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Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.