Illegal insider trading can land you with hefty fines and even jail time. If you are using nonpublic information to make money in the stock market, you have to be very careful with how you go about it. You may think of insider trading as something only experienced Wall Street traders do, but even novice investors can commit this crime accidentally.
Before trading stocks, it is important to understand what is legal and illegal so you can stay on the right side of the law. Here are some mistakes you should avoid as an investor.
Not reporting your trades
There are circumstances where you can trade your company’s shares without getting in legal trouble. However, whenever you buy or sell your company’s stocks, you need to report the trade to the Securities Exchange Commission and follow all of the agency’s guidelines. Going against this protocol can make you appear guilty of a crime.
Misusing nonpublic information
Another way you can accidentally break the law is by mishandling information that you obtain from your company. Sharing nonpublic information with others can qualify as “tipping,” even if you do not expect the person to use the information to decide on a trade. You should also be careful with the information you hear about other companies if you plan to buy or sell their shares.
Insider trading has a lot of gray areas, which is why you should try extra hard to make sure you are on the safe side. By avoiding these mistakes, you can protect your own investments while avoiding trouble with the law.