Why Do Insiders Sell?

It's not always a bad sign.

Just a quick blog on insider transactions. Recently I’ve noticed a few people talking about CEOs selling shares, particularly in Amazon after Jeff Bezos unloaded a substantial amount. They assume if insiders are selling it's time to get out, this isn't necessarily true. They could be selling to raise capital to diverse their portfolio, pay for school fees or maybe buying a house.

Insider transactions work primarily under a rule called 10b5-1; this automates transactions based on a set criteria such as price and volume. Kind of like a 'Take Profit' for us retail traders.

When the conditions of the 10b5-1 are met the trade is triggered. This is to stop insiders buying and selling before big news or other information that they may be privy to before the general public. Which is obviously illegal. That’s not to say they don’t have information, but if they did they could face investigations by the SEC.

Here you can access the SEC Form 4 - If you scroll to the bottom of each form it will tell you if it's a Rule 10b5-1 trade or not. The general advice from the SEC is to set up plans in advance, known as a 'waiting period’ to avoid the appearance of insider trading. So although a lot of shares have been sold by Jeff Bezos these have been disposed under the 105b-1 rule.

So although insider sales are not necessarily a bad sign (they could be), buying is always a good sign and shows a strong belief in the financials and growth of the company. Why else would a Director risk their own money on something they don't believe in?

Hopefully this helps clear up some of the confusion around insider transactions. Make sure you give me a follow on eToro!

67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.


Recent Posts

See All