Insider trading prevents information from being available to all parties by definition. That argument essentially essentially means that a certain amount of people should be allowed be defrauded to find the correct market price.

Real estate is an especially bad example too because when selling a house you have to disclose any information about the property that may affect it's future value or risk legal action - but still real estate fraud continues.

Insider trading delegitimizes markets. It’s illegal for all regulated US commodities trading. It’s called front-running. It in theory would make the market more efficient for that one minute interval where a local trader eg makes trades ahead of a larger institutional order of an honest participant. But by screwing over the honest participant it would misrepresent the true price of the asset. It’s definitely illegal by the CFTC and any exchange that trades anything regulated.

That doesn’t stop people from trying to get away with it under the radar tho (small front-running order ahead of large institutional order). The innovation in crypto is frontrunning at the transaction time is more difficult (trades are encrypted, not made in some open outcry pit).

However this doesn’t stop exchanges from screwing over customers by creating demand and someone inside trading their pre-listed asset.

To prevent that programmatically you’d need a crypto protocol for establishing new listings where everyone is aware of new listings in advance and agrees via some fair consensus.

> Insider trading makes markets more efficient as the information enters the market earlier, allowing them to reach the correct price sooner.

How exactly do you think this happens? If I know that a stock is about to rise significantly, I can just buy it at the current price all the way up to the day the information becomes public, and I will not have changed its price at all, but will profit massively off of my inside information.

The market will not reach the correct price until material information becomes public.

>The market will not reach the correct price until material information becomes public.

Not if the EMH is true.

You're misunderstanding EMH. It does not include prescience. And BTW, it's generally not considered true except in its weakest forms.

> and I will not have changed its price at all

Of course you will have, buying affects the price.

Marginally, but nowhere near to the extent that the price will change when the insider infortmation becomes public (unless I'm doing something crazy, like buying all available stock at any price below what I think the price will be).

In a world where insider trading is legal, why would you stick to small time trades?

Because you don't want others to notice what you're doing, obviously. If the CEO of X is buying massive amounts of X stock, people will start assuming they have inside information, and the price will go up. If the CEO of X bought a few shares at market price every day, that will be less likely to alert anyone, and they will be able to continue buying at very low prices.

So you’re arguing that insider trading has no effect at all?

Insider trading makes someone richer at the expense of others, it's a form of fraud. I don't think it necessarily affects the market significantly otherwise, except by introducing more irrationality and lack of trust, if not regulated against.

How is insider trading a form of fraud? Insider trading can certainly be fraud, but you’ll have to further explain why this would be an inherent property of insider trading.

>Insider trading makes someone richer at the expense of others

This just shows that your understanding of markets is at elementary school level.

How exactly does insider trading cost anybody else money? It simply allows for more accurate pricing.

If I own shares of company $x and an insider sells their shares of $x causing the stock to plummet, I do not lose anything. I still own those stocks, they’re just valued more accurately.

> How is insider trading a form of fraud?

It is a type of fraud because the insider is selling you a stock at a price they know is wrong (or buying it from you). They are hiding from you information that they know would affect your decision to trade.

Further, imagine that I as a CEO (or more realistically, executive team) buy a short contract on my own company's shares (through intermediaries, so people don't find out I did it), and then intentionally tank the company to force the stock price to go down at a later date. Wouldn't this be extremely similar to insurance fraud?

> If I own shares of company $x and an insider sells their shares of $x causing the stock to plummet, I do not lose anything. I still own those stocks, they’re just valued more accurately.

Again, you're assuming that the insider would trade at the new price. This is a completely unfounded assumption.

If I'm an insider and know that a company whose shares are currently worth 100$ will announce 0 revenue two months from now, I will sell my shares at 100$ to someone who still believes the company is doing ok. Depending on how big of an insider I am, I will have to do this carefully so as to keep up the ruse as long as possible - hopefully all the way to the announcement, when the stocks will plummet to 10$, and all the dupes who I got to pay me 100$ will be left holding the bag.

Now of course, if all insiders start trading away their stock, the price will start dropping, so maybe they won't be able to sell all their shares at 100$, maybe the price will settle at 90$ or 80$ or even lower. But if the market has been told the company is doing well in terms of sales (even though the insiders know its not) they will not allow the price to drop as low as it should.

> It is a type of fraud because the insider is selling you a stock at a price they know is wrong (or buying it from you). They are hiding from you information that they know would affect your decision to trade

So it would also be fraud if I sold a stock because I happened to overhear the executives of a company in a restaurant discussing some Very Bad thing that was about to happen to the company?

In reality this simply isn’t fraud. The stock is just worth different amounts to different people with different knowledge.

> Further, imagine that I as a CEO (or more realistically, executive team) buy a short contract on my own company's shares (through intermediaries, so people don't find out I did it), and then intentionally tank the company to force the stock price to go down at a later date. Wouldn't this be extremely similar to insurance fraud

This is obviously illegal regardless of the existence of “insider trading”.

Limited available capital? You can only borrow so much money. Also, you can't know for certain how much the stock will move after the information becomes public.

Surely you would shop around and raise money from big funds? If they won’t bite, maybe your information just isn’t that impactful.

Who would invest in a company if senior management is allowed to steal from investors? You might as well legalize stealing. Markets need trust.

>There's no insider trading laws in commodities or real estate, have those markets collapsed?

I didn't check, but is this really true? If a mining company executive knows that for whatever reason they will see a 10% drop in yield next quarter, but it's not public knowledge, they can buy futures, no problem? All the execs can get together if there's something going on and invest on that info as long as they're investing in the commodity, not stock?