OFFENSIVE TRADING

Insider Trading

What is meant by Insider Trading ?

Insider trading, a prohibited action and an offence, can be defined as selling or buying of securities (stocks, derivatives, etc.) of a listed company by investors (individuals or legal entities) with access to the strategic non-disclosed material information about the company.

Impacts of Insider Trading.

Studies claim that illegal insider trading increases the cost of capital for securities issuers decreasing overall economic growth.

Insider Trading is good..?.!.?

Contradictory to this some economists comment insider trading should be allowed for benefit of the market.

Authorized Insider Trading.

Trading by specific insiders, like employees, is commonly permitted. Many jurisdictions have required reporting such trading so that the transactions can be monitored. In the United States and several other jurisdictions have ordered, trading conducted by such insiders like corporate officers/ key employees/ directors or specific shareholders must be publicly disclosed or reported to the regulator within a few business days of the trade.

Who can be insiders ?

Not only insiders themselves but also any persons related to them, such as brokers, associates, and even family members who become aware of undisclosed information or trades can be insiders or guilty. The rules and the extent of enforcement governing insider trading are complex and vary from country to country.

When insider trading occurs, general investors having no access to that news meet unexpected losses and cause investors to lose confidence in the reliability of the market.

Market Manipulation

Market manipulation is a trading offense, which uses information in the market to obtain unfair profit by altering the market prices in an unnatural way, as if it was being undergone to the natural laws of supply and demand.

Market manipulation is also causes unexpected negative impact on other investors.

Spoofing

What is meant by Spoofing in Market ?

Spoofing results in market prices, which did not reflect the actual economic fundamentals of supply and demand and it is a manipulative kind of trading activity with following elements:

Big quantity orders are placed without intention of being executed, but with intention to develop a misleading impression of increasing liquidity in the market.

Small quantity orders placed on the opposite side of the market, from big quantity orders placed by the same trader, with intention of taking advantage of any price movements that might result from the misleading impression of increasing liquidity that the big quantity orders created.

Big quantity orders placed at or near the best bid / best offer price with an intention to avoid being filled in the marketplace.

Recent cases against spoofing players have highlighted the way that High-frequency traders engage in spoofing with computers to send a rapid bundle of buy and sell orders into the market. Other traders can also spoof the markets as some investigations by regulators shown.

Benjamin Blander, a managing member of Radix Trading LLC in Chicago says, “Spoofing is extremely toxic for the markets, anything that distorts the accuracy of prices is stealing money away from the correct allocation of resources.”

Spoofing is not easy to be defined. Many  reasons are there for order cancellations such as a trader might cancel when a news flash shows a different trade is in order, when the market turns in an unexpected direction, market making firms continuously adjust/cancel orders as they monitor demand and supply for a particular security.

Traders say evident of spoofing is how prices moving every day in a range of futures, stock and bond markets. Many financial firms have developed software to detect spoofing to avoid their traders getting duped. The full extent of spoofing has not been calculated.

What are the risks involved in Securities trading ? Click here to go to the narration.

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