Insider Buying/Selling

Why should I care about insider buying/selling?

For markets: Insider transactions are closely monitored by investors as they can provide signals about a company’s prospects. Widespread insider buying, for example, is often viewed as a bullish signal. Conversely, heavy insider selling might suggest concerns about the company’s outlook, although it's not always indicative of trouble ahead.

For you personally: Tracking insider activities can help refine or potentially time your investment decisions. For instance, if you’re substantial insider buying might reinforce your decision to buy a shares in a company at a particular time. Similarly, heavy selling – taken together with your other research tools – might give you pause before buying shares.

Who is considered an insider of a company?

Insiders are defined as top executives (CEO, CFO, etc.), board members, and any shareholders owning more than 10% of the company's shares. These individuals generally have access to crucial, non-public information about a company's prospects that can impact a company’s stock price. To stop them from taking advantage of their position, insiders are only allowed to buy and sell company shares during certain periods where, broadly speaking, they’ve got next to no extra information compared to other investors.

Is insider buying good for a stock?

Insider buying is generally viewed positively by investors because it suggests that insiders, such as executives or directors who know the company best, are confident about its prospects. When insiders invest their own money into their company's stock, it often signals their belief that the stock is undervalued or that upcoming developments will be favorable. However, while insider buying can be a bullish indicator, the significance of such transactions may depend on the context of the buying pattern, the insider’s position, and the trade size.

Is insider selling always bad?

No, not necessarily. You’d be forgiven for assuming that insiders who sell stock expect the company's share price to decline, but there are lots of other, less ominous, reasons for insider selling. Insiders may sell stock to fund personal expenses like buying property, to pay taxes owed, or for estate planning purposes – all the while being positive about the company’s outlook.

That aside, folks with a significant portion of their wealth tied up in a single company’s stock might sell a portion of their holdings as a strategy to reduce risk and diversify their portfolios. What investors might want to look out for, then, is the wider context of insider selling like what proportion of holdings is being sold off and whether others in the know are selling too.

How can I track insider buying and selling?

In the US, investors can use the SEC’s electronic data gathering, analysis, and retrieval (EDGAR) system. It’s free and hosts company filings including insider transactions. If you’re not a professional investor, however, you might find it overwhelming. Financial news platforms tend to report on the bigger transactions, which might be more accessible. And while expert tools like Bloomberg help professional investors keep track of transactions as soon as they’re filed, some financial analytics websites offer data and analysis tools including on insider activity that are accessible to retail investors.

Is insider buying and selling the same as “insider trading”?

Insider transactions, where company executives buy or sell stock based on public information during specific windows, are legal. Their transactions are reported to financial market regulators to ensure no foul play.

Insider trading, on the other hand, is illegal. That’s where an investor – who isn’t necessarily a company executive – transacts based on “material non-public information” (i.e. information that’s not in the public domain and is likely to move the share price once it is). Doing this gives them an unfair advantage in the market at the expense of other investors and can lead to hefty fines and imprisonment.