Why is Insider Trading Illegal?
A practical issue is that insider trading transfers wealth from most investors to the few insiders. If this were permitted, non-insiders would rarely make any money, and they'd stop investing. That would then defeat the purpose of the capital markets which is to attract capital. A moral issue is that managers and operators of a company should act in shareholders' interests. Insider trading directly takes money from other shareholders and transfers it to the insider. It's a nasty conflict of interest (and would allow any CEO of a public company to make ton of money quickly, regardless of their job performance). In short, shareholders and management should succeed or suffer together, so their interests are as aligned as possible and managers have the proper incentives. "@sdg - If you can be flippant, I can be pedantic. Insider Trading is not illegal. Any employee of a company can be an insider, yet most of their trades are perfectly legal. What is illegal is trading on Inside Information. Such information may be available to those within a company, or those who have some contact with an employee. In fact, if I am seated at a restaurant table and hear Bill and Warren talking about a purchase they plan to make, I am in possession of inside information and risk prosecution should I purchase shares and profit.  Often, a company will have a ""quiet period"" before earnings reports or potential stock-price-moving-news. During this time, employees are forbidden from buying or selling shares, excluding those that would be automatically bought in their retirement accounts or ESPP." "I'm surprised at the tone of the answers to this question! Trading with insider information is corruption and encourages fraud. As in many areas, there's an ethical line where behavior the gap between ""ok"" and ""illegal"" or unethical is thin. The classic local government insider information example is when the local councilman finds out that a highway exit is being constructed in an area that consists mostly of farmland. Knowing this, he buys out the farmers at what they think is a premium, and turns around for 10x profit a few months later. In that context, do you think that the councilman acting on that insider information is committing a crime or ethical lapse? Most people say yes.  Even in this case, the line is thin. If the same councilman has his finger on the pulse of growth patterns in the area, and realizes that the terrain makes a certain area a prime candiate for a highway and exit, buying up land would not be criminal -- but it would be risky as it creates a perception that he is abusing his position." To be flippant: it is illegal because it is against the law; there is no considered involved, it just is. To elaborate, part of the illusion of the stock exchange and other market-like entities is that of (apparent) fairness. If I think a stock will go up because it is involved in a growing industry, that is generally public information.  Conversely if I have a dim view of a particular company because of its track record of product launches, that is similarly out in the open. A secret formula is something that I invented or discovered, not (presumably) something that I stole from someone else. To stretch that further: If I notice that Company X stock always moves with Company Y stock, that is indeed something that I have found, that I can try to profit from.  It is secret to me, but not particularly dependent upon information not available to others, just that my interpretation is better. So trading on information in the public domain is fine, as it preserves the principal of fairness I mentioned, whereas inside knowledge breaks that principal. Capitalism works best when there is transparency.  Your secret formula for wealth in the stocks should be based on a fair and free market, as sdg said, it is your clever interpretation of the facts, not the facts themselves.  The keyword is fair. Secrets are useful for manufacturing or production, which is only a small part of capitalism.  Even then we had to devise a system to protect ideas (patents, trademarks and copyrights) because as they succeed in the market, their secrecy goes away quickly. "Illusions of transparency. Mitigation of risk. Emotion. The system.  Short answer per sdg's post - it's the law. Long answer which I wont get into - it's a philosophical stance. It makes people feel better. It encourages a sense of ""the system really does work.""" "Secret formulas are legal, ""privileged information"" is not. And that may be the whole point. People are allowed to trade stocks profitably if doing so results only from their skill. A ""secret formula"" (for evaluating information) is part of that skill. But having ""privileged information"" is not considered skill. It is considered an unfair, illegal advantage. Because company officials (and others) with privileged information are 1) not permitted to trade stocks while that information is privileged and 2) are not allowed to share that information with others. Inevitably, some do one or the other, which is why they are prosecuted. ""Raj"" took the process to new highs (or lows). He not only ""dealt"" in privileged information, he PAID for it. Anything from a new car or house to $500,000 a year in cash. In essence, he had a bunch of strategically placed ""spies"" inside or close to corporations including one on the board of Goldman Sachs, ""selling out"" their companies, and thereby practicing a form of corporate ""treason.""" "It is illegal because laws are written by people, and laws of stock trade are written, in part, to make it appear ""fair"" and thus contribute to the willingness of the people to invest their money in that particular venue. Profiting from information on the stock market that some people have and some can't have is considered ""unfair"", since it presumably excludes the latter from profit-making opportunities and thus makes their trades less profitable than otherwise. Since it is universally felt so, people made laws that prohibit such behavior.  I am not aware of any research that shows beyond doubt that allowing insider trading would really ruin stock markets, but such thing would be very hard to prove. There are arguments to both sides, and the side that supports prohibiting such trade has a clear majority, so it is prohibited."
Many economists think that in a free market there would be more insider trading as they're able to more efficiently transmit pricing signals to the rest of the market.  Can you come up with an argument how insider trading makes markets less free? What exactly is your definition of a free market? "Probably the biggest driver of the increased volumes that day was a change in sentiment towards the healthcare sector as a whole that caused many healthcare companies to experience higher volumes ( https://www.bloomberg.com/press-releases/2017-07-11/asset-acquisitions-accelerate-in-healthcare-sector-boosting-potential-revenue-growth ). Following any spike, not just sentiment related spikes, the market tends to bounce back to about where it had been previously as analysts at the investment banks start to see the stock(s) as being overbought or oversold. This is because the effect of a spike on underlying ratios such as the Sharpe ratio or the PE ratio makes the stock look less attractive to buyers and more attractive to sellers, including short sellers. Note, however, that the price is broadly still a little higher than it was before the spike as a result of this change in sentiment. Looking at the price trends on Bloomberg (https://www.bloomberg.com/quote/CDNA:US) the price had been steadily falling for the year prior to the spike but was levelling out at just over $1 in the few months immediately prior to the spike. The increased interest in the sector and the stock likely added to a general change in the direction of the price trend and caused traders (as opposed to investors) to believe that there was a change in the price trend. This will have lead to them trading the stock more heavily intraday exacerbating the spike. Note that there traders will include HFT bots as well as human traders. You question the legality of this volume increase but the simple answer is that we may never know if it was the target of traders manipulating the price or a case of insider trading. What we can see is that (taking ""animal spirits"" into account) without any evidence of illegality there are plenty of potential reasons why the spike may have occurred. Spikes are common where traders perceive a change in a trend as they rush to cash in on the change before other traders can and then sell out quickly when they realise that the price is fundamentally out of sync with the firm's underlying position. You yourself say that you have been watching the stock for some time and, by that fact alone, it is likely that others are for the same reasons that you are. Otherwise you wouldn't be looking at it. Where people are looking at a stock expecting it to take off or drop you expect volatility and volatility means spikes!" Given your clarification that you re only intending to use cryptocurrency as a capital asset & a long term investment vehicle, and not as a business day trading or trading for others, I would say this definitely is NOT illegal. The tax man says cryptocurrency is property. The IRS made this clear in Notice 2014-21.  As long as you report it every time you do transfer it and an income loss/gain is triggered, I see nothing wrong here. Calling insider trading theft is a pretty big stretch. I think it should remain illegal as it's not great for markets and undermines investor faith, if the people that bought stock from this guy wanted the stock they would have gotten it anyways. A lack of trust in the regulator can also stop everyone trading.   If you don’t believe the bank notes you are getting paid with are real, why do any work? The amount of money spent on compliance to prevent insider trading alone probably dwarfs the cost it may impose on the markets.   But separately from that, the information that insider has is obviously going to get out, right? If it were spread through word of mouth heterogeneously and not released to all market participants at once, you eliminate or greatly diminish the value of ultra high frequency trading, which has become a useless arms race that probably doesn't add much value to society.  In the world of information, there's no clear marking that says *public* and *non-public*, but rather many shades between. I just don't think it's really worth pursuing except in the case of actual company insiders. We should be focusing our limited energy elsewhere, in my opinion. Prop (proprietary) traders trade using huge amounts of a bank's money (i.e. other people's money) so the reason why they have such low commissions (and they certainly do) is that the firms for which they work negotiate low commissions as the quantities and volumes (as they also trade very frequently) will be high and so the total commission will be very high. There is no such thing as a prop trading account unless you are a big bank with a very large bank roll (tens of millions of USD) so you cannot open one to enjoy those benefits unless you have enough money that you can negotiate your commission with brokers. 25k CAD is definitely not enough money to even start a conversation about those sorts of commissions. note: prop traders are generally banned from trading intraday with their own money by their employers and the law as it is a massive conflict of interests. Those who do and get caught face lengthy prison sentences. "again, you feel compelled to add terminology that you don't seem to understand.  There is no chicanery necessary to ""bet"" against a company.  It's called shorting.  Our you buy a sell option (a ""put"").  These have been around for ever.  Individuals can do it if they desire.    Market manipulation is another matter and certainly does happen.    Thus far, there does not appear to be any evidence that FB's stock price was manipulated downward, it was just over-priced to begin with."