Although this isn't like to be a factor for most traders, it should be noted strongly that insider trading is illegal. BetterTrades students should avoid any temptation to use inside information to their advantage, as it decreases the overall value of the security involved

By definition, insider trading is the trading of a stock or option by individuals with access to non-public information about the company. For example, if a company's CEO learned that his company was about to be taken over and bought shares knowing the price would rise, he would be participating in insider trading.

Another example of insider trading would be if a company official didn't act on his own behalf on information obtained, but passed the information along to his brother. That would still be insider trading, since the brother benefited from information not available to the public.

There are instances where insider trading rules don't apply. For example, if you were playing golf and overheard a man in the clubhouse telling a friend that his company was about to be purchased. You would not be charged with insider trading unless a close connection between you and the company's officer could be established.

Some experts, like Nobel Prize winner Milton Friedman, believe rules on insider trading should be revoked. They claim that insider trading benefits investors, who are able to get the new information more quickly.

One of the most famous cases involving insider trading was the 2004 case of media mogul and entertainment guru Martha Stewart. The U.S. Securities and Exchange Commission charged that Stewart was aware that the Food and Drug Administration was going to reject a cancer drug being developed by ImClone, a stock in which Stewart had an interest. She was actually convicted of lying to investigators and served five months in prison.