Insider buying

Insider buying and selling refers to company executives, directors, and other insiders trading their own company's stock, a normal and legal activity as long as it is publicly disclosed and does not rely on material information the market has not yet seen. This is distinct from insider trading, which specifically means trading on that kind of non-public information and is illegal.

Buying and selling are not equally informative. An insider can sell for many ordinary reasons unrelated to the company's prospects, such as diversifying savings or covering a tax bill, so a sale alone is not automatically a signal. Buying is stronger, since there is really only one reason an insider puts more of their own money into the stock, they expect it to rise.

Not every disclosed transaction is a genuine purchase either. A large part of executive pay comes as stock options or restricted stock that vests over time, and those shares appear in the same disclosures as a real purchase made with an insider's own cash. Distinguishing the two is what separates a genuine signal from routine compensation working as designed.