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.
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.
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”.
