When an insider of a company i.e., Director, Promoter or any person connected with the company has reasonable information, which is not available to the general public and deals in securities of the company i.e., sale or purchase of securities with the intention of earning high profits, it is known as insider trading. For the protection of investors, SEBI has issued directions for the prohibition of insider trading.
Example: Mr. X, one of the directors of PQR Ltd. knew that bonus shares were to be announced in the next meeting and he expected the price to rise. He bought 10,000 shares. By the end of next month the price increased by Rs.9. He sold these shares and made a profit of Rs.90,000. Thus Mr. X gains because of him being an insider. This is known as insider trading.
