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Why is insider trading illegal?

Wisconsin residents like you may partake in trading within the stock market. If you do that, it is important to understand how the stock market works. For example, the law considers some actions of trade illegal.

One of these actions is insider trading. You may have heard of it before, but do you know how damaging it is? Do you know what the penalties are? It can impact you more than you might think.

What is insider trading?

According to Merriam-Webster’s dictionary, insider trading is an illegal activity. The law often defines it as a white collar crime. What is insider trading? The dictionary defines it as an act of buying or selling stocks from a company. You take this action using “inside information”. You get this information from a source within the company itself. Sometimes, two “inside men” from different companies may trade information with each other. In other cases, a person within a company with access to information may use it to buy or sell stocks.

Why is this illegal? In short, the stock market should act as an even playing ground for everyone. What if you use information no one else has access to? This is an unfair advantage. It gives you the ability to predict the rise and fall of stocks before anyone else. You save money but no one else has that chance. This acts against the spirit of the stock market.

What is the penalty for insider trading?

The penalty for insider trading is steep, too. For individuals, you may face a fine of $5,000,000. “Non-natural persons” face fines of up to $25,000,000. You can also spend time in jail. The maximum sentence is 20 years. Keep this in mind if considering making an insider trade.

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