What is insider buying, and who counts as an insider?

For reporting purposes, an insider is an officer or director of a company with registered stock, or anyone who owns more than 10% of a registered class of its shares. These are often called Section 16 insiders, after the section of the Securities Exchange Act of 1934 that requires the reports. Ordinary employees are not covered just because they own shares.

An insider files Form 3 on first becoming an insider, Form 4 for each change in holdings, and Form 5 once a year for certain transactions not reported earlier. Section 16 also has a short-swing rule: profits an insider makes from a purchase and a sale, or a sale and a purchase, within six months can be claimed back by the company. That is one reason insiders rarely trade their own stock for quick gains.

Corporate insider (Section 16 insider)
An officer or director of a company with registered stock, or an owner of more than 10% of a registered class of its equity, who must report trades in the company’s shares to the SEC.
Insider buying
The legal purchase of a company’s shares by one of its insiders, reported on Form 4. Open-market purchases with the insider’s own money carry the transaction code P.

What is SEC Form 4, and when is it due?

Form 4 is the Statement of Changes in Beneficial Ownership. It must be filed before the end of the second business day after the day the trade was executed, and it appears on the SEC’s EDGAR database, free to search by company or by insider. In the drawing below, a hypothetical director buys on a Thursday. Friday is business day 1, Saturday and Sunday do not count, and Monday is business day 2, the deadline. Market holidays do not count either.

For a few specified transactions, such as some trades made under a pre-arranged plan, the rules set a later date as the execution date, so a Form 4 can arrive a few days after the trade itself. Since the 2023 amendments, bona fide gifts of shares are also reported on Form 4 rather than waiting for the annual Form 5.

Form 4
The SEC filing in which an insider reports a change in holdings, due before the end of the second business day after the trade. Table I lists shares, Table II derivatives such as options.

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Five day boxes for November 2026: Thursday 5, trade, in green; Friday 6, business day 1; Saturday 7 and Sunday 8, hatched gray, weekend: not counted; Monday 9, outlined in red on yellow, business day 2: Form 4 due. A note reads market holidays are not counted either.

How do you read a Form 4? A line-by-line example

The drawing at the top of the page shows one line from Table I for a hypothetical director of XYZ. Read it from left to right:

  • Transaction date 11/05/2026: the trade date, which starts the two-business-day clock.
  • Code P: an open-market or private purchase. Other common codes are S for a sale, A for a grant or award from the company, M for exercising an option, F for shares withheld to pay the exercise price or tax, and G for a gift.
  • Amount 20,000 and A: 20,000 shares acquired. D would mean disposed of.
  • Price $25.00: so the purchase cost 20,000 × $25.00 = $500,000 of the director’s money.
  • Owned after 120,000: the holding grew from 100,000 to 120,000 shares, +20.0%. A purchase that is large next to the insider’s existing stake says more than a token one.
  • The 10b5-1 box at the top of the form: ticked when the trade was made under a pre-arranged plan; the plan’s adoption date then appears in the explanation of responses.
Form 4 transaction code
A letter that says what kind of trade a Form 4 line reports: P open-market or private purchase, S sale, A grant or award, M option exercise, F shares withheld for the exercise price or tax, G gift.

Insider buying vs insider selling: why do sales say less?

Insiders sell for many reasons that have nothing to do with the outlook: to pay the tax due when shares vest, to diversify when most of their wealth sits in one stock, to buy a house, or because a pre-arranged plan sells on a schedule. Many Forms 4 that look like selling are code F, shares the company withheld for tax, or code M followed by S, an option exercised and sold.

Buying is different. Code P means the insider took cash from their own account and bought at the market price, the same price you would pay. That is why many investors read insider buying as a clue worth researching and give routine selling less weight. It is still only a clue. Insiders can be early, can be wrong, and see their own company more favourably than an outsider might; check the business itself with how to read earnings reports.

What is cluster buying?

Cluster buying is when several insiders of the same company buy on the open market within a short period. In the drawing below, four hypothetical XYZ insiders buy within 6 trading days: the CEO $250,000, the CFO $100,000 and two directors $400,000 and $150,000, a total of $900,000. One person can have personal reasons to buy; several separate people spending their own money at the same time is harder to explain away.

The drawing also shows a $300,000 sale weeks earlier under a pre-arranged plan, which says less. And the price keeps moving sideways after the cluster: insider buying is not a timing signal, and a stock can keep falling after insiders buy. Compare the buys with each person’s holding, check whether the company has just reported or raised money (see stock dilution), and look at any buyback the company itself is running.

Cluster buying
Open-market purchases by several insiders of the same company within a short period, usually read as a stronger clue than a single insider’s purchase.

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A falling price line that flattens. Early on, a red marker reads planned sale $300,000. Later, a green band holds four green markers numbered 1 to 4 under the line. A card lists open-market buys, code P: 1. CEO $250,000, 2. CFO $100,000, 3. director $400,000, 4. director $150,000, total $900,000, four insiders within 6 trading days. A note reads a cluster is a clue to research, not a signal: price can keep falling.

What is a 10b5-1 plan, and what is the cooling-off period?

A Rule 10b5-1 plan is a written plan, set up while the insider has no material nonpublic information, that buys or sells shares later by a formula or a schedule. A trade made under a qualifying plan has an affirmative defence against insider trading claims, which is why many executives sell this way. The SEC tightened the rule in amendments adopted on December 14, 2022, effective February 27, 2023.

The biggest change is a cooling-off period before the first trade. For directors and officers, trading cannot begin until the later of 90 days after the plan is adopted or two business days after the company files its 10-Q or 10-K with results for the quarter in which the plan was adopted, but never more than 120 days. For other insiders, the wait is 30 days. In the drawing below, a plan adopted on February 2, 2026 can first trade on May 8 for an officer, two business days after a May 6 10-Q, and on March 4 for another insider.

The amendments also allow only one single-trade plan in any 12 months, restrict overlapping plans, require directors and officers to certify that they have no material nonpublic information when they adopt a plan, and add the Form 4 checkbox. Companies must also disclose each quarter when their directors and officers adopt or end such plans.

Rule 10b5-1 plan
A pre-arranged written plan to buy or sell a company’s shares, adopted in good faith without material nonpublic information, that gives the trades an affirmative defence against insider trading claims.
Cooling-off period
The wait before the first trade under a new or modified 10b5-1 plan: for directors and officers, the later of 90 days or two business days after the next 10-Q or 10-K, up to 120 days; 30 days for other insiders.

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A timeline from February to June 2026, with a plan adopted on Feb 2. Director or officer: a gray bar runs to a green dot, first trade May 8: 10-Q on May 6 + 2 business days, past a dashed mark at 90 days: May 3, with a red dashed line at the 120-day cap: Jun 2. Other insider: a short bar to a green dot, first trade Mar 4: 30 days. A note reads Rule 10b5-1 cooling-off: the later of the two dates, never past 120 days.

Legal insider trades vs illegal insider trading: where is the line?

Insider trading in everyday speech means two different things. The legal kind is everything above: insiders buying or selling their own company’s shares and reporting it on time. The illegal kind is buying or selling a security on the basis of material nonpublic information, such as unannounced earnings or a pending takeover, in breach of a duty to keep it confidential. Passing such a tip to someone who trades on it can be illegal for both people.

The SEC brings civil cases, and serious cases can also be prosecuted as crimes by the Department of Justice. For an ordinary investor, the practical lesson cuts both ways: Form 4 data is public and fair to use, while a tip about news that has not been announced is not. Be wary too of social media posts that claim insider knowledge to push a stock; see pump and dump schemes.

Material nonpublic information (MNPI)
Information that has not been made public and that a reasonable investor would consider important to a decision to buy or sell, such as unannounced earnings or a pending merger.
Illegal insider trading
Buying or selling a security on the basis of material nonpublic information in breach of a duty of trust or confidence, or tipping someone who trades on it.