The stock market offers an excellent opportunity for both small and big investments. It is based on the ideology of buying stocks at low prices and selling at high rates with the aim of making profits. Because of the diversity of the market predictability, many investors may be tempted to use unethical ways to gain. Insider trading is one of such activities which enables an individual possessing some information not know to the public to use it to his advantage when trading. This paper will look at the ethics of inside trading.
Insider trading mostly applies to the directors, managers, employees, and printers of stock related information but is not limited to these individuals. Any person who uses non-public information to trade in the stock market is an insider trader. According to Werhane (1994), in the United States of America, the government mandates honesty and fairness in the stock market trading. It is therefore unethical for a person who buys stock based on the information that he finds in the trash thrown by mistake. Since the information is non-public, an individual who uses such information to trade in the stock market has an advantage over other investors in the market. Using such information to trade breaches fairness which is an essential foundation of the capital market (Werhane, 1994). Additionally, the person would not be trading based on honesty hence violating the American ethical rules of stock trading. Buying stock based on ill motives of gaining because of insider information is unethical. Scheppele (1993) mention that insider trading increases the buying and selling prices of the stock market hence affecting investors and the society at large.
Investing in the stock market requires an individual to analyze the market trends thoroughly. Therefore, it would be unethical for an individual to wholly rely on some information found in the trash that was thrown by mistake without understanding the market dynamics.
In retrospect, insider trading is unethical and punishable according to the rule of law in the USA. Insider trading involves the use of information which is not accessible to other investors to trade and gain competitive advantage. Stock market trading should be done based on a level ground for all investors.
References
Scheppele, K. L. (1993). " It's Just Not Right": The Ethics of Insider Trading. Law And Contemporary Problems, 56(3), 123-173.
Werhane, P. H. (1994). The Ethics of Insider Trading. In The Act Guide To Ethical Conflicts In Finance (Pp. 101-111).
