Insider trading (and Form 4)

Investing glossary · Markets and instruments

Trading by a company's executives, directors and large shareholders; legal when reported publicly, illegal when based on material non-public information.

Definition

In the United States, officers, directors and owners of more than 10% of a company's shares must report their trades in its stock. The report is filed with the SEC on Form 4 within two business days. These public filings are legal "insider trading", and they let outsiders see when the people closest to a company buy or sell.

Illegal insider trading is different: trading on material information that the public does not have yet, such as an undisclosed earnings result. Reading Form 4 filings is useful but not a shortcut. Insiders sell for many reasons, such as taxes or diversification, while buying with their own money in the open market is usually a stronger signal.

Worked example

Illustrative numbers

A Form 4 lists the insider's name and role, the date, the number of shares, the price and a transaction code. For example, "P" marks an open-market purchase, "S" an open-market sale, "A" a grant or award, and "M" the exercise of an option.

Purchases made with the insider's own money (code P) are generally more informative than sales (S) or automatic awards (A).

How ATLAS uses it

ATLAS shows executive and insider trades taken from the public SEC filings, so you can see who is buying and selling in a company.

Frequently asked questions

Is insider trading illegal?

Trading by insiders is legal when done openly and reported. It is illegal when based on material non-public information.

How quickly are insider trades reported?

In the US, within two business days of the transaction, on Form 4 filed with the SEC.

Related terms

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Not investment advice. ATLAS estimates are produced by statistical models from public data; they can be wrong and past performance does not predict future results. Consider your own situation before investing. Disclaimer