Insider Trading Tracking
Many people consider insider trading as something extremely bad. However, if addressed wisely even you can extract some benefits.
This article will provide you with a completely legal technique for using insider trading in a way that will not threaten you with spending some time in the jail.
Insider Traders and the Clues They Give
Insider is every key employee and director of a company. As such, these people are required to register their trades connected with their company's stock within two trading days. Such notifications are available to the general public as well as to individual investors.
If a CEO has executed a trade driven by information that the general public is not aware of, such a trade will be considered as illegal.
The main thing you will have to do is to examine the trading activities of company insiders. These will give you clues on some of the anticipated by the insiders changes with the target company stock.
Insider Stock Trading Tracking
When a key employee of a company executes a trade, it is worth considering the reasons for his/her activity.
- Insiders Selling Company's Stock
If a key employee is selling company's stock, then this may be interpreted in many ways. One of the reasons for selling a stock is that the employee is anticipating a fall in its price.
However, the selling activity of a key employee may be just an action of converting stocks into cash. Many companies tend to construct compensation plans in which they include company's stocks. So, the key employee may need the money to cover for some other expense. S/he may wish to use the proceeds from the stock sale to purchase other investment classes in order to diversify his/her investment portfolio.
No matter what the reasons for the selling of company's stocks, if several key employees start to sell their stocks, this may signal you that it is time to reexamine the company's fundamentals.
- Insiders Buying Company's Stock
On the other hand, if insiders are buying company's stocks, this may be for a number of reasons. The first and foremost reason you should consider is whether the price of the stock is about to experience a rise.
The rise in the stock's price may not occur in the near future. But, you may interpret the buying activity of insiders as a sign that the price of the stock is really about to rise.
However, this sign should be taken into consideration only when more key employees are purchasing stocks. If only one or two CEOs are making stock purchases, then their company may require them to own company's stocks. Additionally, many companies lend their top executives money to purchase company's stock.
Final Piece of Advice
It is recommended to observe the activity of company insiders in order to gain some view on the future of the company. Company insiders are believed to have more knowledge on the dealings of the company. However, you should keep in mind that the selling of company's stocks may be dictated by several reasons, a falling prices being only one of them.
Additionally, you should be concerned with patterns of trading activities, not one time events. Finally, you should not rely completely on insider trading tracking for your stock trading activities.
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