When is Stock Trading Illegal?
It’s a good idea to research a company before you trade the stock. But if you learn information that is both material and non-public, you can’t trade the stock.
Material information is information that will significantly impact the stock price. Non-public information is information that is not widely available. For instance, if a company is secretly planning to merge with another company, that info is material and non-public and you can’t trade the stock. But if a company is just planning to renovate their building, that info may be non-public but it’s not material, so you can trade the stock.
It doesn’t matter if you get the information on purpose or on accident. Once you learn material, non-public information it’s actually illegal to trade the stock.
The reason it’s illegal is because it gives you an unfair advantage over others. But once the information becomes public, you can trade the stock. But if you trade beforehand, you are committing Insider Trading, and you can get fined or go to jail!
Don’t forget, if you learn material, non-public information, it’s illegal to trade the stock until it becomes public. Just remember, if you trade the stock beforehand, you will have to deal with the consequences of Insider Trading!
Have fun trading stocks by playing Trading Day, our free stock market game.