Insider trading is the illegal purchase or sale of shares by someone (usually a director) who possesses inside information about a company’s performance and prospects which, if publicly available, might affect the share price.
Inside information is information which is not available to the market or general public and is supposed to remain confidential.
These types of transactions in the company’s own shares are considered to be fraudulent.
The ‘director insider’, simply by accepting employment, has made a contract with the shareholders to put the shareholders’ interests before their own, in matters related to the company.
When the insider buys or sells based upon company-owned information, he is violating his contract with, and fiduciary duty to, the shareholders.