On Insider Trading

Insider trading sits at the heart of one of the deepest ethical debates in finance. Defined as the buying or selling of securities based on material, non-public information, it has become synonymous with unfair advantage, secrecy, and market manipulation.

At its core, insider trading is not just a matter of profit and loss—it is about trust, fairness, and the integrity of financial markets. Historically, insider trading was not always illegal or stigmatized. In the late nineteenth and early twentieth centuries, corporate executives and bankers freely traded on private knowledge, seeing it as a reward for their position rather than a breach of duty.

This changed dramatically after the 1929 stock market crash and the subsequent congressional investigations, which exposed how insiders enriched themselves while ordinary investors were left to shoulder catastrophic losses. The Securities Acts of the 1930s reframed insider trading as a threat to market confidence, embedding into law the principle that all participants should have equal access to material information.

From an ethical standpoint, the case against insider trading is compelling. When executives, directors, or employees trade on secrets unavailable to the broader public, they exploit a position of privilege at the expense of ordinary investors. This undermines the fairness of markets, erodes trust, and creates the perception that the system is rigged in favor of the powerful. In this sense, insider trading is not simply a technical violation of securities law but a breach of the moral contract that underpins collective participation in markets.

The damage caused by insider trading extends beyond the individuals directly affected. Each scandal weakens investor confidence, discourages participation, and increases the cost of capital for firms. In a broader sense, insider trading corrodes the legitimacy of financial systems, suggesting that wealth is not earned through innovation or skill, but through access to privileged corridors of power. For markets to function as engines of growth and fairness, they must be perceived as arenas where all participants play by the same rules.

While debates continue about the scope of what counts as “material” or “non-public,” there is little dispute over the ethical boundaries. Insider trading is considered a betrayal of fiduciary duty, a misuse of trust, and a distortion of markets. Unlike legal trading strategies that rely on judgment, research, or timing, insider trading exploits secrecy in a way that no ordinary investor can hope to match. It is this asymmetry—rooted not in effort but in hidden privilege—that makes the practice so corrosive.

Insider trading therefore remains both a legal and moral violation, striking at the foundations of fairness in finance. As long as markets depend on public confidence, the ethical condemnation of insider trading will continue to be as important as its legal prohibition.