How Insider Trading Works

Inside trading  is one of type of financial scandal which is mostly done in the big corporations. As student of accounting and finance, you should know, "How inside trading works?" One of benefit of knowing the inside trading works, you can contribute your ideas and hard work to stop this type of cheating which is illegal.


1. Company's Employees Know the Confidential Information

To know company's confidential information is not crime. Every employee has right for doing better work. But to known confidential information for cheating with company and with public is crime. Evil minded employees get such information.

2. Company's Employees Misuse the Confidential Information

Now, second part of inside trading work, they met other professional like lawyer, independent auditor for misusing the confidential information. They involve all the activities which will help them to misuse the confidential information. All such professional's are also misusing their power of use the information. They contacted with each other for financial benefits.

3. Company's Employees Takes Advantages from Confidential Information 

Now, company's employees and other team of professional cheaters take the advantages from confidential information. From this, inside trading fraud takes the birth.

For example. A has the information of current earning of XYZ Company. He went to B auditor who audits the accounts. With this, they have made the plan. Earning was so low. They bought all the shares at low price. Now, with window dressing, they have increase the earning artiifcially. When this false information went in the public through paid media. Public started buy its shares at big price. These cheater employees and his team sell his shares at highest price and earned big money from this inside trading cheating. Few days, after liquidated because all those who bought shared at big price demanded money from selling of asset of company. Company has only 10% value of market value of its shares. Small investors has suffered big loss. Thousand employees lose their jobs due to this.

So, in India, SEBI stops inside trading and in USA SEC has made regulation to stop this. 

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Accounting Education: How Insider Trading Works
How Insider Trading Works
Accounting Education
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