What is defined as insider trading?

Insider trading is defined as using confidential information for trading. This involves trading a publicly-traded company's stock based on material, non-public information about the company. This practice is illegal and unethical because it gives an unfair advantage to individuals who have access to exclusive information, potentially leading to significant financial gains.

When someone trades stocks based on information not available to the general public, they are exploiting their insider knowledge, which undermines market integrity and investor confidence. Insider trading laws are established to prevent this type of behavior and ensure that all investors have equal access to pertinent information before making trading decisions.

Understanding this definition is critical, as it highlights the ethical and legal framework governing securities markets and aims to promote fairness and transparency in trading.