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Effects of Insider Trading on Stocks

No one can deny that insider trading in the stock market is illegal, and there are severe penalties for perpetrators. If you are found guilty of trading in the stock market using insider information, you could end up behind bars and face the full force of the law. The Securities and Exchange Commission (SEC) has a requirement where every insider needs to disclose their trades, and they must be reported in financial papers.

Investors can then use this information to find clues about various companies and decide which trades they want to make. The simple act of insider trading in the stock market is enough to land you in trouble because using information that isn’t accessible to the other party is a criminal act. There is a lot said about the impact insider trading has on the stock market.

Insider Trading and the Stock Market

It is said to derail confidence in the market and to hurt the stock market in general. However, the stock market can’t get hurt because it isn’t a physical entity. You can’t claim that the market has been a victim of insider trading because it won’t be true. You could say that insider trading affected the price of stocks in the market and hurt the traders who were engaged in the buying and selling of that stock.

The stock market witnesses various trades being made every day, and some of them are bound to be made based on insider information. Verifying trades that have relied on insider information can be difficult because you can’t know that information wasn’t public knowledge beforehand. The price of stocks is generated by supply and demand, so you can’t blame it on insider information.

However, one thing that you can blame insider trading is that it decreases the value of trades made in the stock market. If an investor uses insider information to make trades and profits from them, it will create an unfair advantage. The imbalance will result in the market favoring them over others, which can’t be allowed to stand.

Therefore, it makes sense that insider trading is regulated when trading on the stock market. No individual who has prior knowledge about a company can trade in their stock and gain an advantage over others. That will create a level playing field and ensure that stock market trades are free from any controversy. That is easier said than done, but in the general scheme of things, it is a necessary act that will help keep the playing field level for all traders.

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