What Is Insider Trading and When Is It Legal?

By Stock Titan Editorial Team Published October 18, 2026, 11:45 AM EDT

What is insider trading?

The SEC has said so in plain words. Its investor answer page, last modified in 2013, said that “the term actually includes both legal and illegal conduct,” and “When corporate insiders trade in their own securities, they must report their trades to the SEC” (SEC, Fast Answers, archived copy).

The illegal kind is the one in the news. The SEC’s investor site defines it as “buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security” (Investor.gov glossary). Material means important enough to matter to an investor, such as an unannounced merger or a quarter’s results before they are released. Nonpublic means the market has not been told yet.

Rule 10b5-1 says a trade is made on the basis of inside news when the trader “was aware of the material nonpublic information when the person made the purchase or sale,” and adds that the law of insider trading “is otherwise defined by judicial opinions” (the rule’s text).

You do not need to work at the company to break the law. The SEC lists cases against friends and family members who traded on a tip, and against staff at law, banking, brokerage and printing firms. Government employees and people who took secrets from their own employers are on the list too. Passing on a tip can also be a violation (Investor.gov).

When is insider trading legal?

Section 16 of the Securities Exchange Act names these insiders. It covers a company’s directors and officers, plus shareholders who own more than 10% of a class of its registered shares. They must report most of their trades in the company’s stock “within two business days on Forms 3, 4 or 5” (SEC, Officers, Directors and 10% Shareholders).

Each form has its own job, and some trades may wait for the yearly form. A Form 3 is filed within 10 days of becoming an insider and lists what the person owns. A Form 4 reports each change, and a Form 5 sweeps up, once a year, anything that was allowed to wait (SEC investor bulletin). The Form 4 deadline is written into SEC Rule 16a-3, which says the form “must be filed before the end of the second business day following the day on which the subject transaction has been executed” (the rule’s text).

Every line of a Form 4 carries a letter code. P is a purchase on an exchange or from another person and S is a sale, the trades most people mean by insider buying and selling. A is a grant or award from the company, M an option exercise and G a gift. F means shares handed back to the company to pay an exercise price or a tax bill (SEC bulletin). Our field by field Form 4 guide walks through the rest of the form.

The law adds two more limits on these insiders. A company can recover “short swing” profits from a purchase and a sale made within six months, and Section 16 bars insiders from selling their company’s stock short (SEC). Since the 2022 amendments, companies must also disclose their own insider trading policies and procedures (SEC press release, December 2022).

Is insider trading a felony?

Rule 10b5-1 places insider trading under Section 10(b) of the Exchange Act and Rule 10b-5 (the rule’s text). A person who willfully breaks the Act or its rules “shall upon conviction be fined not more than $5,000,000, or imprisoned not more than 20 years, or both,” and a company can be fined up to $25 million (the Exchange Act penalty section). No one is imprisoned for breaking a rule they prove they did not know about. Federal law classes a crime with a top prison term of ten to under 25 years as a Class C felony (federal sentencing law).

A civil case is separate and needs no conviction. A court sets the penalty “in light of the facts and circumstances,” and it “shall not exceed three times the profit gained or loss avoided” (the civil penalty section). The same law lets the SEC pursue a person who controlled the trader, such as an employer, in some cases.

Do insiders sell more than they buy?

StockTitan’s insider data starts in June 2025. Over October 2025 to September 2026, 14,339 different insiders reported at least one sale and 6,034 reported at least one purchase. The insiders counted are officers, directors, big shareholders and the funds that file as owners.

Counted by line, the gap is wider. A Form 4 lists a sale as several lines when the broker fills it at several prices, so lines run higher than trades. Across the same year the filings held about 4.9 sale lines for each purchase line, and even the closest month, December 2025, had 3 sale lines per purchase line.

Show the data

Category	Sales (S)	Purchases (P)	Tax or exercise price (F)
Oct 2025	6,339	999	1,835
Nov 2025	7,304	2,089	2,784
Dec 2025	4,350	1,453	2,466
Jan 2026	5,321	884	4,157
Feb 2026	8,048	1,510	12,355
Mar 2026	9,063	2,217	9,993
Apr 2026	6,533	1,045	2,887
May 2026	9,981	2,180	3,586
Jun 2026	11,971	1,912	2,530
Jul 2026	6,436	962	1,768
Aug 2026	11,118	2,053	2,751
Sep 2026	7,728	1,889	2,155

The F bars in the chart are a reminder of what is easy to miss. F lines record shares handed back to the company to pay a tax bill or an option’s exercise price, and in February and March 2026 they outnumbered sale lines. They are not sales on the market, so a count of insider selling that adds them overstates it. Our counts keep them apart.

The balance depends a great deal on the job. Directors who are not executives came closest to even, with 1.4 sellers per buyer. Officers below the CEO and CFO level were the heaviest sellers, at 6.3 sellers for each buyer.

Part of the gap may come from how insiders get their shares. Executives often receive stock as pay, through grants and option exercises (codes A and M), which never show up as a purchase. A later sale shows up under code S as a sale. So the ratio of sellers to buyers does not measure how confident insiders feel, or whether their total holdings rose or fell.

Show the data

Category	Value
CEO	1.6
CFO	2.8
Other officer	6.3
Director (not an officer)	1.4
Other (10 percent owners, funds)	1.7

Why do insiders sell stock?

The SEC’s own bulletin gives both sides. It says that “Many investors believe that reports of insiders’ purchases and sales of company securities can provide useful information as to insiders’ views of the performance or prospects of the company,” and then adds, “Of course, insiders may sell company securities for any number of reasons, including for liquidity and diversification purposes” (SEC investor bulletin).

The filings also show stock arriving as pay. Grants, awards and option exercises (codes A and M) hand shares to executives, and F lines record shares handed back to cover tax or an exercise price. When an executive later sells shares received this way, the form records the sale with no reason attached.

A common question is whether a CEO selling stock is good or bad, and the filing cannot answer that. A sale with the 10b5-1 box ticked is one the filer says ran on a plan set up in advance. Under the current rule, a director or officer adopting such a plan must certify they know no inside news. A sale without the box is not, by itself, a sign of anything improper. StockTitan reports these filings as facts and reads no buy or sell signal into them.

How does a 10b5-1 trading plan work?

The plan is a legal defense the trader has to prove. Under Rule 10b5-1, a trade is not made on inside news if the person adopted a written plan before learning that news. The plan fixes the amount, price and date, or uses a written formula for them, or leaves the person no later say (the rule’s text). Departing from the plan, or hedging around it, loses that protection. Changing the amount, price or timing counts as ending the plan and adopting a new one, with a fresh wait.

The SEC tightened the rule on December 14, 2022. Its chair at the time said the SEC had heard from courts, commenters and members of Congress that insiders “have sought to benefit from the rule’s liability protections while trading securities opportunistically on the basis of material nonpublic information” (SEC press release, December 2022). The adopting release cited studies finding that trades made shortly after a plan was set up were unusually profitable (SEC adopting release).

The cooling-off period is the heart of the change. A director or officer now waits 90 days after adopting the plan, or until two business days after the company reports that quarter’s results if that comes later. The wait never runs past 120 days. Anyone else other than the company waits 30 days (the rule’s text).

The amendments also made plan trades visible. Insiders who file Forms 4 or 5 must “indicate by checkbox that a reported transaction was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and to disclose the date of adoption of the trading plan,” for reports filed on or after April 1, 2023 (SEC press release). Companies also report each quarter whether their directors and officers adopted or ended a plan (SEC compliance guide).

Are CEO stock sales planned in advance?

In numbers, 2,246 of the 3,668 filings that reported a CEO sale had the plan box ticked. On the buying side, only 118 of the 1,379 filings reporting a CEO purchase did. The checkbox has been on every Form 4 since April 2023, and every sale and purchase filing in this window answers it. The window is the seven latest complete months, and it counts filings, so a filing with many sale lines counts once.

Show the data

Part	Value	Squares
Rule 10b5-1 box checked	61%	61
Box not checked (remainder)	39%	39

The rule sets the timing for these plans. A CEO is an officer, so a plan adopted under the amended rule cannot trade until at least 90 days after adoption. A plan adopted before the rule took effect in 2023 is older still. The form asks for the plan’s adoption date, which our counts do not read, so they cannot show how far ahead each plan was set.

Executives used plans more than board members did. Sale filings carried the box 49 percent of the time for CFOs, 46 percent for other officers and 35 percent for directors who are not executives. Purchases rarely ran on plans in any role, never above about 9 percent.

Show the data

Item	Purchase filings	Sale filings	Change
CEO	8.6%	61.2%	+52.6 pts
CFO	1.3%	49.1%	+47.8 pts
Other officer	3.3%	46.2%	+42.9 pts
Director (not an officer)	2.1%	35.1%	+33.0 pts
Other (10 percent owners, funds)	1.3%	19.1%	+17.8 pts

The box tells you what the filer says, and no more. It marks a trade the insider intended to fit the rule’s defense. It does not prove the trade was lawful. The SEC has charged executives with insider trading under a purported 10b5-1 plan while they held inside news (SEC, fiscal 2022 enforcement results). A sale filing with no box can be an ordinary sale too.

Is insider trading legal for Congress?

The law states that “Members of Congress and employees of Congress are not exempt from the insider trading prohibitions arising under the securities laws, including section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.” It also states that each member owes “a duty arising from a relationship of trust and confidence,” which is the duty the insider trading ban rests on (the STOCK Act).

The same act created periodic transaction reports. Members of Congress, the congressional staff and federal officials who file financial disclosures must report a trade “Not later than 30 days after receiving notification of any transaction,” and “in no case later than 45 days after such transaction” (STOCK Act). Set beside a company insider, who has two business days, that is a much longer delay before the public sees the trade.

Frequently asked questions

The information provided in this article is for educational and informational purposes only. It does not constitute financial advice, investment recommendation, or an endorsement of any particular investment strategy. Past performance does not guarantee future results. Investors should conduct their own research and consult with a qualified financial advisor before making investment decisions.

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