What is Insider Information?
Insider information refers to confidential information about a company that has not been publicly disclosed.
How Does Insider Information Work?
Given their position, managers and executives within a company are privy to information about a company's operations that is not available to the investing public. The news and details of an upcoming merger or special dividend that have not yet been announced are two examples of insider information. Once information has been made public by the company, it is no longer considered "insider" information.
Why Does Insider Information Matter?
Individuals with access to insider information have an unfair advantage in the market. Using this information to base a trade is an illegal practice known as insider trading.
It is also illegal for a person with insider information to pass it to a third party so that they may use the information to profit.