The world of trading is vast and often complex. It is easy for people to feel lost in the list of rules and regulations. People often misstep without even realizing they have done something wrong.
This is why it is crucial to understand what is and is not legal before making any decisions. This includes issues like insider trading, which can net you a hefty penalty if convicted.
What is insider trading?
The U.S. Securities and Exchange Commission takes a look into insider trading. They classify this as illegal behavior. Why? Because it gives you an unfair advantage over the competition. This can tank investor confidence in the markets. They may no longer believe in its integrity or fairness if people are using a competitive edge to beat out everyone else.
So what is insider trading? In short, it happens when you use information the public does not have access to so you can make a market decision. For example, an employer at a company may get wind that the company will soon file for bankruptcy. Knowing its market value will soon decrease, they sell their share of stocks in advance. This makes use of an unfair advantage.
What are the penalties?
You can face steep penalties if convicted of insider trading. For a start, you face up to 20 years in prison. As an individual, you also face a maximum potential fine of up to $5 million. Needless to say, this is a catastrophic financial hit and a huge chunk of time carved out of your life.
If you face accusations of insider trading, consider contacting a legal expert. They can help map out your potential options moving forward.