Why is insider trading bad

But if you turn the plate. If an insider knows beforehand of, say, a merge with another company, that will definatly lead to a great rise in stock prices, and then acts on this by buying lots of stock. The guys who sell would lose in this situation. Of course they would have sold in either case, but still.
 
Quote from BDGBDG:

it should be legal. that is my point. insider trading is misunderstood.
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how is it misunderstood??? please elaborate.

While it may be illegal/unfair/just not right...I have to say if i had millions about to evaporate on news i had in my hands..I to would be selling and selling fast..hell id be buying as well if i had positive news in my hands... :D
 
Don't forget that the "real" way getting away with it is to have your relatives buy thousands of options on the stock that you're an insider with. Nobody will ever figure that one out, right? This actually happened "back in the day" and many "relatives" are probably still paying the money back and recovering from prison sentences.

When I was an officer and on the Board of US Elecitricar, back in the 1990's, our stock was trading around $2-$3...and we were headquartered in the small town of Sebastopol, CA, right next to the Santa Rosa municipal airport. We were developing Electric cars and motors, and had an alliance with GM. Well, we had set up a meeting with the "big guys" of General Motors, including the then CEO, Roger Smith. Well, there were dozens, if not hundreds of the "locals" who had purchased stock in our Company over the years. It took about 45 minutes to unload the GM jet and drive to our building, in which time, the stock traded as high as $12 or more as I recall. The rumor mill was sure that GM was going to buy our Company, LOL. Well, GM didn't, never had a plan to, they just wanted to see the AC drive electric motors in a working prototype since the motors were developed by one of their subsidiaries.

I had zillions of shares, did not sell any of course (tempting, LOL)... I think if I had, that would have been bad thing, and that my "karma" would have divorced me altogether.

If it feels wrong, it probably is But we all dance to different drummer.

FWIW,

Don
 
Quote from BDGBDG:

Why is insider trading bad. doesnt it actually help the alleged victim. for example mr. buyer wants to buy shares of msft. bill gates knows that msft is going to have a horrible earnings anouncement, so he sells his shares, which will add to the supply and bring down the price. Mr. Buyer then buys shares of msft at the lower price. without the insider trading, mr. buyer would have been buying into a market with less supply. anyone understand? same works for positive news. sellers sell into more demand.
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Just another take, for the heck of it. You seem to think the alleged victim is the guy who buys the stock at a lower price...I would think the victim is the guy Bill Gates sold to at the outset.

Mr. Buyer one very upset. Mr. Buyer two buys a bit cheaper.

Don
 
Just because so many jumped on the OP, I will take his side.

Actually quite a few people argued for taking away insider trading laws to make the market more efficient. Also, you only have to watch insiders, and since CEOs and other big shots have to disclose their holdings, you would know about it quite soon.

Now there are 2 different insider trades, good news and bad news:

1. Good news: sure insiders made a lots of money, but who got hurt?

2. Bad news: you could argue against it more convincingly, nevertheless taking large positions in risky companies (biotech) is always a dangerous proposition.

Also, the after hours bad news still effect you, so insider trading laws won't protect you from a huge up/down gap...

P.S.: Here are a few arguments FOR insider trading:

http://en.wikipedia.org/wiki/Insider_trading#Arguments_for_legalizing_insider_trading
 
Quote from Pekelo:

Just because so many jumped on the OP, I will take his side.

Actually quite a few people argued for taking away insider trading laws to make the market more efficient. Also, you only have to watch insiders, and since CEOs and other big shots have to disclose their holdings, you would know about it quite soon.

Now there are 2 different insider trades, good news and bad news:

1. Good news: sure insiders made a lots of money, but who got hurt?

2. Bad news: you could argue against it more convincingly, nevertheless taking large positions in risky companies (biotech) is always a dangerous proposition.

Also, the after hours bad news still effect you, so insider trading laws won't protect you from a huge up/down gap...

P.S.: Here are a few arguments FOR insider trading:

http://en.wikipedia.org/wiki/Insider_trading#Arguments_for_legalizing_insider_trading
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insider information doesn't necessarily mean that the insider is the one using it to make a profit.....then what? how can a big hedge fund using inside info to front run news or huge orders be fair? who gets hurt then?? the money has to come out of someones ass...:D
 
Ok...clearly anyone with some intelligence can understand why insider trading does not benefit the person who doenst know.......but what i want to know is why in every other aspect of business its buyer beware.....if you buy a lemon of a car from someone you get stuck with that piece of junk...you cant have the SEC break the sale and you get your money back.....so if we have the attitude of buyer beware everywhere else....why do we make laws that counteract this attitude in the market place where everyone is a shady SOB looking to screw the next guy for a quick buck???

i never understood this
 
Quote from ElCubano:

the money has to come out of someones ass...:D
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The reason why they call insider trading a victimless crime is that you are not FORCED to take the other side of the trade.

Let's say the CEO knows that the $50 biotech stock is going to plumet after the news. So he sells his shares at $50. Are you forced to buy it? It is completely up to you.

Now if the CEO goes out and insures everybody just before the bad news that everything is rosy, that is FRAUD and not insider trading. And by the way that happens without insider trading all the time.

So again, who is the victim of insider trading?
 
Quote from madmunny:

if you buy a lemon of a car from someone you get stuck with that piece of junk...you cant have the SEC break the sale and you get your money back.....
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Exactly. Insider trading is allowed in just about everything. In real estate, cars, pretty much anything you buy on Ebay, those are all insider trades, because you can not know everything about the product.

So if insider trading is allowed in just about any other businesses, why would stocktrading be different?

Come on guys, give me a good counterargument, otherwise I have to call you assholes for jumping on the OP without reason.

I bet you guys didn't think this through... :)
 
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