This article discusses the importance of insider trading and what it means for investors. The article will be divided into subheadings with a brief description of each.
What is Insider Trading?
Some securities are sold by insiders illegally, but most buying and selling by insiders is legal. As long as trades are not based on non-public information, those with legitimate insider access can buy and sell shares in their investment accounts.
Where Can You Find Insider Trades?
Investors and insiders must file SEC Form 4. The Securities and Exchange Commission (SEC) created Forms 3, 4, and 5 to report insider and institutional stock trades. It’s a good idea to take the time to review insider trades before making your buy and sell orders. The SEC created the EDGAR system to provide the public with access to a wide range of public reports, such as Form 4. The NASDAQ website also provides a search feature where you can find Form 4 filings by company.
How Can You Use Insider Trading Reports?
If you research insider trades in a particular company and find several reports, you have the option to review the data and look for trends. If a company shows a lot of buying activity on the insider list, it’s a good sign that the leadership believes the stock is going up. They may want to capitalize on those gains. On the other hand, a selling trend might indicate that executives believe the stock will drop soon. They might be trying to sell before the price declines.
What Does It Mean When You See Someone Selling?
What if one executive is selling a lot while others are holding onto their shares? This is not necessarily a red flag. If you see a pattern of leaders receiving stock option grants and then selling part of it, that’s also not a major concern. But if you notice a pattern of selling across the company without reason, it may be time to pay attention. Some investment researchers look for this kind of pattern. It’s more pronounced when it’s not offset by a similar level of buying.
Conclusion
There are many factors to consider before buying or selling stocks. Considering insider buying and selling can be a helpful signal that may assist you in predicting future fluctuations in stock prices. However, this should not be your only source of information.
Instead, use it as one signal among many that help you make decisions. You should also consider the company’s fundamentals, analyst estimates, recent news, and what you expect for the company’s future.
Fundamentals are the best indicators of a company’s long-term success. Short-term trading is very risky. Focus on buying stocks that prioritize sustainable, high-quality businesses in the long term. Your portfolio is more likely to achieve better results.
Putting all this together, be sure to include insider trading trends as an additional factor. Then, you’ll be more likely to head toward making good investment decisions.
Frequently Asked Questions (FAQs)
When must an insider report their purchase or sale?
Insiders, including officers, directors, and those who own at least 10% of the company, must report changes in their holdings by the second business day following the transaction. In other words, if an insider sells shares on Friday, they must publicly disclose that sale by Tuesday.
Why
Does the CEO sell stocks?
Every CEO will have their own reason each time they sell stocks. There are many reasons for selling that are not related to the core business. Perhaps the CEO wants to sell some stocks to buy a new house or diversify their investments. They may essentially be cutting their salary by selling stocks and cashing in.
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Sources:
The Balance used only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and maintain the accuracy, reliability, and quality of our content.
U.S. Securities and Exchange Commission. “Insider Trading Transactions and Forms 3, 4, and 5.”
U.S. Securities and Exchange Commission. “Compliance Guide for Insider Trading.”
Source: https://www.thebalancemoney.com/insider-selling-and-your-investments-4134435
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