Insider trading refers to the buying or selling of a publicly traded company’s stock based on non-public, material information about that company. It is illegal and can lead to serious penalties.
But what if you have accidentally committed insider trading without knowing it?
Common scenarios for accidental insider trading
Accidental insider trading can occur in a number of situations. For example, you might hear a ‘tip’ about a company from a friend or family member who works there and then decide to buy or sell the company’s stock based on that tip. Or, you might overhear a conversation in a public place about a significant event that could affect a company’s stock and trade based on that overheard information. Legal authorities could potentially consider both scenarios as insider trading.
Preventing accidental insider trading
To avoid accidental insider trading, always be cautious about the sources of your information. Ensure the information you base your trading decisions on is available to the public. Furthermore, avoid making trades based on tips from friends or family members who might have insider information.
Steps to take if you suspect you have accidentally committed insider trading
If you believe you may have accidentally engaged in insider trading, it is essential to stop trading immediately. Document everything you can remember about the trade: the source of the information, when you received it and when you made the trade. Taking these steps could potentially help in proving your innocence if the need arises.
While the concept of insider trading might seem straightforward, it can get complicated when you are not aware of the full context of the information you have received. Always trade responsibly and make sure your actions are within the confines of the law to avoid potential trouble.
