Tips/Insider knowledge

Kinetic^

Right this is illegal (or someone may clear that up for me) but imo, it's still rampant throughout the markets, anyone ever come across it?

I know someone who had gotten one or two and has made significant money from them, what say you on this?

Edit:before someone says it, I am not my friend.....I'm not in the market yet but should be very soon.

PDelux

Wouldnt know about the legalities of it.

The company i work for has a 'blackout period' every quarter where we are not allowed to buy or sell the company shares. This is supposed to stop employees from profiting from good or bad news. But who's to know if you tell a few friends? i mean, its not even going to move the price unless they are very rich friends.
It's more serious i suppose if information is being sold to the likes of hedge funds. You hear stories from time to time about people caught selling info, there was one in BusinessWeek last week.

xebec

This is a highly illegal practice. But keep discussing it as long as there's no insider knowledge passed!

The blackout period is similar to the period that company directors can't sell or buy shares at particular times before/after news or an IPO. The efficient markets hypothesis would fall apart if insider info was legal...

damnyanks

Of course its rampetent, its how the equity markets work. Make no mistake there are plenty of illegal strategies in place. Traders use them until they get caught.

Large investment banks have previously used their position to manipulate the prices of equities and bonds. Just look at Citi group and how many countries they are banned from!

My friend who works in M&A is constantly getting calls from people he knows in hedge funds looking to get info about deals he might be working on (Of course he doesnt tell). But the fact that the try means it must work with some other people.

Also research departments at banks who are normally based near traders have a lot of vital information about the companies they research. They usually can't talk in work unless they have a lawyer present but obviously outside work something might slip etc.

Then of course you have people in companies passing information on.

Generally you could get away with it in small quantities (i.e. someone from here would get away with it)

It's when the larger movers get involved when trouble comes about.

fobster

I have a sort of related question relating to currency markets. The below situation isn't real, just hypothetical.

Let us assume there is a global banking/financial services firm and among its many functions it acts as a foreign exchange dealer providing a market for many currencies for businesses involved in international trade etc.

In addition to this it also has a trading function in forex markets where its sole function is speculation and arbitrage in the markets.

If this bank handles the largest proportion of foreign exchange transactions by businesses between two currencies, am I right in thinking that being privy to the information gained from this (i.e the volumes bought and sold etc. which influence supply and demand and therefore prices) the bank will know with a degree of certainty price movements in the near-future, and therefore could eh "accidently" pass this on to speculators and arbitrageurs to take up positions in the market to profit from the info.

Although just reading what Damnyanks said that it's when the larger movers get involved when trouble starts, I guess the potential for large profits is fairly limited as if the authorities know full well that a bank handles the largest proportion of foreign exchange transactions in a certain exchange rate, it will keep a close eye on its other trading activities.

Does that make any sense? Or Is it just all hypothetical?

damnyanks

Not sure what exactly happens there but what I do know is

Banks will have a set daily FX rate for various currencies
Companies will usually enter into future contracts to ensure they know the FX rate they are dealing with.


Then again look at the Asian crisis which was basically someone using the FX markets (amongst other things) to exploit weak laws and overinflated markets.

supersaint

A lot of trading departments will hold orders for the desks that deal with the big companies so they are privy to what the big corporate players are doing in the fx market.

E.g. if company A expects EUR/USD to go to 1.40 and has a set a stop loss order at 1.32, the trading team execute this. This means that the company would want to sell Euro and buy USD at 1.32 if it trades. Therefore the traders will know that a big purchase of USD will go through at 1.32 and will send the market lower so they might jump on this aswell. This is not insider trading but is market knowledge! As a result, the huge banks in NY and London would have better knowledge than smaller banks and as a result, could make more money on it.