How do I control a stock exchange

Trade inside information on the stock exchange

The use of inside information on the stock exchange is also called insider trading. High profit promises entice numerous stock exchange traders to use inside information in their stock exchange transactions.

But watch out: Insider trading is criminally prosecuted in Germany. In most EU countries and in the USA, too, there is a risk of high fines or even imprisonment.

However, a distinction must be made between legal and illegal inside information for stock market transactions. Because some insider information can be obtained quite legally by every investor.

Inside information in stock exchange transactions

According to Section 13 WpHG (Securities Trading Act), inside information provides insight into information that is not publicly available, which can then be used for trading in shares. This can have a massive impact on prices.

If an insider passes this inside information on or uses it for his own benefit, there is a risk of imprisonment of up to 5 years and the payment of heavy fines in Germany. However, many insider deals are known mainly from the USA. The greatest stock market gamblers of all time were often to be found on the American stock exchange floor.

Measures against insider trading

In order to be able to better control the passing on of inside information in stock exchange transactions, several measures have been taken. For example, issuers of securities are required to publish ad hoc information. This obligation includes the immediate publication of important information such as company figures or significant business deals that could have a significant impact on the stock exchange price of the company's shares.

Ad hoc publicity can be seen as the first measure against insider trading. The information can be viewed by everyone involved. The formation of stock exchange and securities supervisory authorities such as the BaFin (Federal Financial Supervisory Authority) is also intended to monitor compliance with the securities trading act.

BaFin filters out suspicious actions on the exchange every day and evaluates them. However, identifying illegal insider trading is usually quite difficult. Because even for the financial supervisory authorities it is often difficult to prove whether certain information could influence the price of a share or whether it was not a matter of everyday price fluctuations.

Legal insider transactions

However, there is also such a thing as legal insider trading. In the so-called directors' dealings, members of the upper management level (or their relatives) conduct securities transactions with the securities of their own company.

This procedure is legal insofar as the transactions must be reported to BaFin, which publishes this information. If this notification does not occur, this type of securities transaction can also be described as insider trading.

Attentive investors therefore have the opportunity to observe the securities transactions of the issuer's management and, if necessary, jump on the bandwagon. Because there is a high probability that the members of the management expect profits when they buy stocks.

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