Insiders often are blessed to have a significant portion of the company’s shares. This obsession often in the form of direct stock ownership or stock options. Since these insiders – or have the opportunity to own a lot of stock, it is in their interests to buy or sell shares when they consider it necessary, in order to realize a profit.
Although in some instances of insider trading are illegal, legal insider trading can be committed in two ways: open market transactions or private transactions in the market.
In open market transactions on the open stock market, where the average investors invest through their operations. The only difference is that insiders are obliged to comply with certain rules and regulations that were set forth by the securities and exchange Commission (sec). After proper documentation, the order passes through is the same as all other orders. Buying or selling in an open market transaction is voluntary insider, and not regulated by any rules of the company. Because these transactions are made at the discretion of the insiders, they can be used to identify his or her opinion about this action.
Closed transaction on the market is the opposite of open market transactions. Any trading that is done behind closed market transaction between an insider and society; no other side. However, as with open market insider transactions, the relevant documents must be filed with the sec to show investors that the transaction took place. Often closed trades in the market occur when the insider receives shares in the compensation package or via options. As a result, they do not necessarily reflect the mood of insider stock.