This trading takes place when those privileged with confidential information about important events use the special advantage of that knowledge to reap profits or avoid losses illegally and unethically on the stock market, to the detriment of the source of the information and to the typical investors who buy or sell their stock without the advantage of inside information.
For example, if one of the top executives of a company shares with you some kind of material information of the company which is yet to be made public and can have impact on the share price of the company, you are now every bit as much an insider as he is, with respect to that information.
Firstly, it is illegal on part of the management executive to share the company’s material information with you before it becomes public knowledge. Secondly, it is equally illegal for you to do so because you are now a “temporary insider”.
This remains true regardless of how many times the information is passed. Legally, anyone who has material information is prohibited from trading, based on that knowledge, until the information is available to the general public.
