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That provides extremely low edge for both parties involved. Your participant with a history of trades could just as easily do research using public information

That provides extremely low edge for both parties involved. Your participant with a history of trades could just as easily do research using public information (company press release aggregation is a classic version) to get similar edge without entering a criminal conspiracy. Notice I mention high leverage. There are 2 challenges (as I see it) to committing insider trading. The first is having information ahead of time that actually predicts how the market will move based on the information. It’s not enough to know a company will have a good quarter you need to know it will be better than expected. Second you need to be able to make outsized returns on that information. You have to beat the market returns by themselves. This compounds with the other issue above. The less obviously market moving data you have the more leverage you need. This narrows the search space pretty considerably for an analytics based approach. You look at insiders with lots of access or anyone making high leverage bets. Finally, do a mental exercise on your step 2. What does that even look like? An insider randomly approaching hedge funds? A random encounter at a bar? A frat reunion where they share each other’s trading history like term papers?

extr 5y ago
I guess I'm imagining more of a situation where you are working with someone (or yourself) that already has a sophisticated understanding of the market's expectations, and you wait for opportunities where your inside info is not priced in well. Eg, a delivery app is expected to have another strong quarter of growth, but your data says that growth has stalled. However if I'm reading your point correctly, you're saying this is harder than it sounds. If you already have a "sophisticated" understanding of the market enough to make this work with low edge, why bother with a criminal conspiracy. And to make outsized returns, you need to use lots of leverage, in which case you're taking on more risk of exposure.

extr 5y ago

I guess I'm imagining more of a situation where you are working with someone (or yourself) that already has a sophisticated understanding of the market's expectations, and you wait for opportunities where your inside info is not priced in well. Eg, a delivery app is expected to have another strong quarter of growth, but your data says that growth has stalled. However if I'm reading your point correctly, you're saying this is harder than it sounds. If you already have a "sophisticated" understanding of the market enough to make this work with low edge, why bother with a criminal conspiracy. And to make outsized returns, you need to use lots of leverage, in which case you're taking on more risk of exposure.