General Question

janbb's avatar

What's the difference between insider trading and a hot stock tip?

Asked by janbb (54015points) August 7th, 2017

If a relative tells you news about a company they work for and you buy stock based on it, is that insider trading?

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9 Answers

Tropical_Willie's avatar

Yup, if you use “confidential information” to trade stock it is insider trading.

If they don’t have “confidential information” it is not! It would be called a hot stock tip if you just like the relative.

Lightlyseared's avatar

Trading based on any information not freely available to every other trader is insider trading. Simple.

imrainmaker's avatar

What info you have @janbb you can pm me..)

CWOTUS's avatar

A relative “who works for a company” may not necessarily be “an insider”. That is, a general rank-and-file (non-management) employee with no special fiduciary responsibility, no duties connected with strategy and planning, no other special knowledge, say, of major orders, company buy-out, etc. is not “an insider”. The CEO or CFO, on the other hand, or members of the Board of Directors are prima facie “insiders”. Between those ranks, though, say “middle managers”, supervisors, people who work in Planning, Purchasing or Sales may or may not be insiders. That’s a gray area.

If the news has been announced to rank-and-file employees, for example, that the company is being sold to another firm, or that a major order has been received, or that a company shake-up is going to occur – or any other “special news” which has been announced to rank-and-file employees or to the public at large, then that is not at all “insider” information.

zenvelo's avatar

Trading based on use of “material non-public information.” is insider trading.

A hot stock tip is based on expectations that are public. For instance, Myokardia Inc (MYOK) was known to be close to releasing a Stage 2 trial report on a drug for treating heart disease. I have had trading requests cross my desk for the last month. Today the news broke before the opening; the stock is up $14.65 to $31.85. (I am prohibited from trading in issues like MYOK).

marinelife's avatar

No. Insider trading would be if the relative told you something the company was keeping confidential.

stanleybmanly's avatar

5 to 7 years.

Strauss's avatar

and where’s Martha when we need her??

CWOTUS's avatar

Just don’t forget, @Strauss, that Martha wasn’t put into the joint for “insider trading”. She did time for “lying to investigators”, or in a word: perjury.

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