Following insiders means reading the share purchases and sales that a company's executives, directors and large shareholders make in their own company, and must disclose publicly. These trades are legal. Open-market purchases, made with their own money, are the most informative; sales, share awards and option exercises say much less.
Legal insider trades vs illegal insider trading
"Insider trading" can mean an offence: using material, non-public information to buy or sell. That is not the subject here. Executives are allowed to buy and sell their company's shares, outside the periods when they hold inside information, provided they disclose every trade. Those public filings are what we analyse.
Where to find the filings
| Market | Who files | Document | Deadline |
|---|---|---|---|
| United States | Officers, directors, holders of more than 10% | Form 4, filed with the SEC (EDGAR) | 2 business days after the trade |
| European Union | Persons discharging managerial responsibilities and close associates | Notification under Article 19 of the Market Abuse Regulation (MAR) | 3 business days, above €20,000 of trades a year (default threshold) |
| France | Same | Published by the AMF in its BDIF database | 3 business days, above €50,000 a year |
| US Congress | Members and their spouses | Report under the 2012 STOCK Act | up to 45 days |
Timing matters: a Form 4 arrives two days after the purchase, a congressional report can arrive six weeks later. The older the information, the less useful it is.
The transaction codes to know
On a US Form 4, every line carries a code. It is the first thing to check, because most lines are not investment decisions.
| Code | Meaning | Information value |
|---|---|---|
| P | Open-market or private purchase | High: a voluntary decision, with their own money |
| S | Open-market or private sale | Low to medium: there are many reasons to sell |
| A | Grant or award (compensation) | Almost none: the executive does not choose |
| M | Option exercise | Low: often mechanical, at expiry |
| F | Shares withheld for tax or the exercise price | None |
| G | Gift | None |
Since 2023 the Form 4 also shows whether a trade falls under a 10b5-1 plan, a pre-arranged schedule of purchases or sales with a cooling-off period. A sale scheduled months earlier says almost nothing about the executive's current view.
Reading a Form 4, line by line
Every Form 4 has two tables: Table I for the shares themselves (non-derivative securities), Table II for options and other derivatives. On each line, look at:
| Field | What it tells you |
|---|---|
| Reporting person and relationship | Officer (with title), director or 10% owner; a CEO's or CFO's purchase weighs more than a director's |
| Transaction date and code | When the trade happened, and its code (P, S, A, M, F, G…) |
| Amount, (A) or (D), price | Shares acquired (A) or disposed of (D), and the price per share |
| Amount owned after the trade | The holding afterwards: a purchase that doubles it says more than one that adds 1% |
| Ownership form, D or I | Direct, or indirect through a trust, a spouse or a company (explained in the footnotes) |
| Rule 10b5-1 box | Ticked when the trade was made under a plan set in advance (on filings since April 2023) |
A Form 4 is due by the end of the second business day after the trade. To find them, open the company on EDGAR and filter its filings on form type 4. In Europe, the equivalent is the managers' transaction notification under the Market Abuse Regulation: in France, the AMF publishes them in its BDIF database.
Why purchases matter more than sales
Executives sell for many reasons: diversifying an over-concentrated fortune, paying taxes, buying a home, paying tuition. They buy on the open market, with their own money, for one main reason: they find the price attractive.
Academic research points the same way. Work by Seyhun (1986), then Lakonishok and Lee (2001), found that insider purchases were followed by above-average returns, especially among small and mid-caps, while sales had little predictive power. Cohen, Malloy and Pomorski (2012) add a useful nuance: "routine" trades (same month every year) carry nothing; the unusual ones carry the information. These results describe averages over long periods, not a rule for any single trade.
Example: reading 90 days of filings
Take Company C, a fictitious US company, over 90 days.
| Date | Person | Code | Transaction | Amount |
|---|---|---|---|---|
| D-70 | Chief executive | P | Buys 20,000 shares at $25 | $500,000 |
| D-45 | Chief financial officer | S | Sells 8,000 shares at $27.50 (10b5-1 plan) | $220,000 |
| D-30 | 4 directors | A | Awarded 10,000 shares each | compensation |
| D-12 | Independent director | P | Buys 4,000 shares at $27 | $108,000 |
Counting shares gives a balance of +56,000, inflated by awards that say nothing. Counting lines gives "6 acquisitions and 1 sale", just as misleading. The right reading isolates voluntary decisions: two open-market purchases, one by the chief executive, worth $608,000, against a pre-scheduled sale of $220,000. Voluntary decisions lean clearly towards buying; that is one piece of information to set against the rest of the analysis.
What strengthens or weakens the signal
- Who buys: a purchase by the CEO or CFO weighs more than one by a manager far from strategy.
- The amount relative to wealth or pay: $100,000 means something different for an executive earning $300,000 a year and for one earning $20 million.
- Cluster buying: several insiders buying in the same window is a stronger signal than a single purchase.
- Company size: in a very large company, what executives know is shared with the market faster.
- Context: buying right after a sharp fall does not mean the same as buying after a results release.
The limits
Insiders get it wrong too, and sometimes buy too early in a decline. The signal is rare: many companies see no open-market insider purchase for months. Outside the US, the data is less standardised. And a widely followed signal attracts followers, which erodes its edge.
How InvestIQ uses this data
In InvestIQ's engine, the "insider and congressional trades" group weighs 20% of the score. Insider purchases make up 60% of it: each purchase is weighted by its amount, the buyer's role and how recent it is; awards and option exercises count as neutral; a sale weighs a quarter of a purchase and never pushes the score below neutral on its own. The signal is halved for companies above $200bn and strengthened below $10bn. Congressional trades count for 25%. Outside the US, where these filings do not exist in this form, the group stays neutral. The details are in the methodology.
In short
Insider filings are public, free and sometimes rich in information, as long as they are sorted: keep open-market purchases, set aside awards, option exercises and pre-scheduled sales, then look at who buys, how much and in what context. It is one clue among others, to be read with results, the quality of the accounts and valuation.
Educational guidance only, not investment advice.
Tools and data for this topic
Frequently asked questions
Yes, when they are made outside the periods in which they hold inside information and are disclosed to the market authorities. Illegal insider trading means using non-public information: that is an offence.
Open-market purchases made with their own money are far more informative. Executives sell for many reasons (diversification, taxes, personal plans), while they mostly buy when they find the price attractive.
Check the transaction code first: only P, an open-market or private purchase, is a voluntary investment decision. Then look at who filed it (officer, director), the amount, the holding after the trade, and whether the Rule 10b5-1 box is ticked.
In the United States, on the SEC's EDGAR database (Form 4, within 2 business days). In France, in the AMF's BDIF database (within 3 business days, above €50,000 of trades a year). Across the European Union, these notifications fall under Article 19 of the Market Abuse Regulation.
A schedule of purchases or sales set in advance by a US executive, with a cooling-off period. Trades under such a plan are flagged on the Form 4 and say little about the executive's current view.
