Any person Invests in the Stocks market with the aim of wealth maximization. The ultimate goal of anyone trading in Stocks is to expand their current wealth. The more frequently this goal is achieved in the Share Market, the happier the investors are! There are various methods and strategies an investor utilizes in order to gain maximum profit.
Sometimes, even with strict regulations, people find illegal ways to involve in malpractice to get higher returns. Insider trading, as the name explains, is the practice undertaken by those who are well aware of the changes in the price of a particular company's stock, or maybe the trend, graphs, patterns, price hike, increase or decrease in demand. So let us see in detail what insider trading is, the SEBI Regulations, whether it is Illegal, and many such questions.
What is Insider trading?
In the Share Market, people Invest in Stocks, bonds, equities, gold, currency, etc. Now, Insiders are those people who are working closely with a company, and they have access to the company's confidential data before it gets public. As these insiders have the details about the price change, they take advantage of this information and make huge money.
This type of activity is considered to be an illegal practice. Anyone found executing this type of malpractice must bear the consequences of the higher authorities. Legal actions will be taken against them.
The SEBI - Securities and Exchange Board of India have made strict rules for those undertaking the insider trading practice. The simple logic behind considering this an illegal activity is that they get an unfair advantage from their information.
If a person is employed in the company and holds the shares of the same company, there are chances that he (Insiders) may utilize the information for personal gain; with the authority to access such delicate and sensitive information, he may misuse it and make himself rich.
Suppose they know the company's quarterly or monthly reports. If it shows a considerable profit, the insider might put his money in the said stock as the results are guaranteed, and there is no chance of any associated market risk.
So, from this point of view, it is illegal. But, for instance, if an Insider does not have complete information and there are chances of either profit or loss by Trading Stocks, it may not be considered illegal. But these are very rare conditions.
While Trading In Stocks, there are generally two types of information: material information and public information. Let us understand these types of information in simple terms, one detail is not yet made public, and another is accessible by the public. Material information may impact the selection of the shares, decisions to buy or sell, etc.
As this information is not yet made public, insiders take advantage of this data to protect them against the market risk and eventually get higher profits. It does not matter how you have accessed the information that is not publicly available, and you are liable to face the consequences.
It may be possible that you are an employee who got some information and shared it with some of your friends. Maybe they shared the same information at their home. Someone from their family used that information to gain profit. Even this type of scenario can be called illegal, and every person involved in sharing this information will be responsible for penalties and prosecution.
So, what safety measures can you adapt to while Trading in Stocks? You can take the help of some experts to know the Share Market trends, and this will be a fair practice to be executed. You can secure your wealth and yourself by taking advice from the right person.
Concluding, I would like to say that whenever you invest In Stocks or while trading in the Share Market, you must follow SEBI Regulations and avoid unnecessary risk.