Investing in Stocks For Dummies
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Fortunately, stock trading is subject to rules of disclosure and the Internet. Insiders who buy or sell stock must file reports that document their trading activity with the Securities and Exchange Commission (SEC), which makes the documents available to the public. You can view these documents at either a regional SEC office or on the SEC’s website, which maintains the EDGAR (Electronic Data Gathering, Analysis, and Retrieval) database. Just click “Search for Company Filings.” Some of the most useful documents you can view there include the following:
  • Form 3: This form is the initial statement that insiders provide. They must file Form 3 within ten days of obtaining insider status. An insider files this report even if he hasn’t made a purchase yet; the report establishes the insider’s status.
  • Form 4: This document shows the insider’s activity, such as a change in the insider’s position as a stockholder, how many shares the person bought and sold, or other relevant changes. Any activity in a particular month must be reported on Form 4 by the 10th of the following month.
  • Form 5: This annual report covers transactions that are small and not required on Form 4, such as minor, internal transfers of stock.
  • Form 144: This form serves as the public declaration by an insider of the intention to sell restricted stock — stock that the insider was awarded, received from the company as compensation, or bought as a term of employment. Insiders must hold restricted stock for at least one year before they can sell it. After an insider decides to sell, she files Form 144 and then must sell within 90 days or submit a new Form 144. The insider must file the form on or before the stock’s sale date. When the sale is finalized, the insider is then required to file Form 4.
Check out the SEC website for a more comprehensive list of insider forms (among others that are filed by public companies).

Companies are required to make public the documents that track their trading activity. The SEC’s website offers limited access to these documents, but for greater access, check out one of the many websites that report insider trading data, such as and

The SEC has enacted the short-swing profit rule to protect the investing public. This rule prevents insiders from quickly buying the stock that they just sold at a profit. The insider must wait at least six months before buying it again. The SEC created this rule to prevent insiders from using their privileged knowledge to make an unfair profit quickly, before the investing public can react. The rule also applies if an insider sells stock — he can’t sell it at a higher price within a six-month period.

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