Acting on Hot tips

Have you wondered what are Hot tips? A Hot tip is a insider information which is not publicly disclosed by the company and the information is leaked by someone who has such a information. This is illegal. Being an insider, you are not supposed to disclose the information; such an act can put you behind the bars. Some publicly listed companies don’t allow the employees to trade in a particular time frame. They have the trading window open during a certain period of time and then they close it. If you abide by the rules and regulations of the company I am sure you will be not doing anything against the company or its policies.

Wondered why you are supposed to trade in a particular time frame only? The answer is very simple; you being an investor should get the information related to the company as a general public and not as an employee. Since you are an employee, you get to know more information than the general public and it gives you added advantage to invest which is not in the right spirits. Hence when the company gets many new clients and it starts performing well, the price of the shares are bound to increase. When you have this information without the public notice then you are sure of the company prospectus and you will buy shares of the company which is not right.

Now getting back to hot tip, generally there are some insiders who leak information and within no time the investors pounce on such a piece of information. Now think this way, if there was a Rs. 100 note lying on the ground and you are walking close it, won’t you notice it? If you notice it, won’t you pick it up? What are the chances that you might not pick up that note? I think the answer is 0.001. Imagine that there are 1000 Re.1 coin lying on the ground and there are 500 people who want to collect the coins. If 500 people decide to share equally then each person get Rs.2 similarly for 1000 people it is Re.1 and if there are 2000 people then only 50 ps, only 1000 people will get Re. 1 and the rest will have nothing to collect. As the number grows you can notice that the share each person gets diminishes. I have assumed that each person gets equal amount. if that was not the case then you can imagine the chaos and how many people will be getting what.

In the above illustration the coins and the note represent the hot tip or the insider information. If you are a lucky one then you will get a note else you might get coin and if you have to get a coin you must ensure that you act really fast on the information else it will become stale. Most of the insider information is leaked in about few minutes and the markets just love them. They just keep waiting for such information and act on it. If you don’t act on it within seconds after the information is leaked it is better not to act on such information only. It does not make any sense.

Act fast on the insider information or else don’t act. You are bound to lose money if you act on stale news.

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2 thoughts on “Acting on Hot tips

  1. Good article emphasizing the need to act quick in market.

    On a lighter note, if 2000 people try to get hold of 1000 Re. 1 coins, how can anyone get 50p? 😀

  2. Saravanan says:

    @Shashi : Yeah you got it right. I have modified the sentence now.

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