Investing in the stock market is supposed to be a level playing field, meaning everyone should have access to the same information at the same time.
Unfortunately, this is seldom the case. Big investors (mutual funds, pensions, hedge funds and so on) often have access to CEOs and other key figures most individual investors don't.
If an investor trades on information that is not available to the general investing public, the investor may be guilty of insider trading. There is another definition of insider trading that is both legal and easy to track.
For example, your neighbor down the street is the chief financial officer for publicly traded company and she mentions that her company was doing really great and is going to surprise the stock market when earnings were reported.
You think this sounds like a good opportunity, so you buy shares of stock ahead of the earnings announcement. Sure enough, when the earnings announcement is released to the public, the company posts some very impressive gains and the stock shoots up on the news.
Thanks to your inside information you make a very nice profit. Unfortunately, regulators are watching trading activity prior to earnings announcement and notice that you made a significant purchase just prior to the surprising news.
This is an example of illegally trading on insider information, however there is insider information that is available to the public and you can monitor on a regular basis if you so desire.
In this case, insider trading means buying and selling activity of key executives in publicly traded companies. Regulations require them to report any time they buy or sell their company stock.
This information is available to the investing public although not in real time since the executives have a window in which to file the reports with the Securities and Exchange Commission.
Still, seeing how the corporate executives closest to the company feel about the prospects can be revealing.
For example if you see executives buying shares of stock it may be a bullish sign that they believe the company is doing well now and will continue to do so in the future.
Likewise if you notice top leadership selling shares of stock you may want to consider whether they know something you don't know.
You can find this information reported in a variety of investing websites. I use MorningStar as my resource. If you look under stocks in the left hand navigation you will see a link to insider trading.
It is important that you not make investment decisions solely on these insider trading numbers. There are many reasons executives buy and sell shares of their company stock and they don't always have to do with whether the executives are bullish or bearish on the company.
This is one of those factors that you should check only after you have researched the company thoroughly. If you notice unusual buying or selling by company executives it is worth looking into to determine why.
If they (multiple executives) are buying, that may be a good sign and verify your research. If they are selling, it may be a warning that bad news is coming.
Or, it may mean nothing. The point is you should know before you buy or sell shares.
You can find the information on the SEC's website where the filings were reported.
An executive may sell stock to raise money for personal reasons that have nothing to do with whether they believe the company is in trouble or not.
The legal version of insider trading is one of those items on the checklist that you should reference after you have thoroughly researched the company. If you have done a good job analyzing the company, you probably have a good idea why the executive is buying or selling.