Insider trading is a regular topic on investment blogs because a year doesn’t go by where someone isn’t caught trying to get an edge on the markets with forbidden knowledge. When you are placing an extraordinary number of PUT or CALL contracts into the market, you’re up to something, plain and simple.
If everyone knows what you know then you are being speculative and that is completely fair. Good luck to you and may your analysis of the market signals be good.
If, however, you are making trades on the basis of information that is not available to the general public, you are treading on thin ice. People are constantly examining movement in options contracts looking for signs that someone is playing around with inside information. The issue is serious enough that investment banks are tightening employee rules to prevent or discourage shady chatroom exchanges of confidential information in the foreign exchange markets.
Whether you’re trading in stock options or foreign exchange you are expected to make your CALLs and PUTs on the basis of the same information as everyone else. It’s hard to seize significant ground over the market when you do that legally. And not everyone who follows the news immediately sees the significance of what is going on.
Just the fact that an imminent scandal is about to break in the news can trigger unwarranted trading. Whether you’re dealing with straight stock prices or foreign exchange services the way you schedule your last-minute trades shows up on more than one person’s economic radar.
Typically the only people who have been exempt from the rules of fair trading are members of government who take advantage of inside information and legal loopholes they created for themselves. And if you believe in watching for inside action then maybe it’s best to follow the trail of privileged traders, because at least you’ll be mimicking legal activity.
Every Website specializing in options-based trading tutorials usually contains warnings about potential abuses of the system. The problem, most likely, is not that casual traders who learn their skills from the Internet are trying to game the system. History suggests that people who are in a position to filter a lot of information are more likely to be tempted.
Even if you’re looking into binary options trading (where you are paid cash-or-nothing or an-asset-or-nothing) you should consider the effect that insider trading may have on the value of the securities you’re purchasing. Is Insider Trading really that common? Well it happens. Let’s just hope it doesn’t happen often enough to render the industry useless. That would be a massive scandal.