What is insider trading?

What is insider trading?

• A. Buying or selling securities based on public information
• B. Investing in securities after thorough market analysis
• C. Buying or selling securities based on nonpublic, material information about the company
• D. Trading securities only on regulated exchanges

Answer: (C)

Insider trading refers specifically to the practice of buying or selling securities based on nonpublic, material information about a company. This information is considered "material" if it could influence an investor's decision to buy or sell the security. Since this information is not available to the general public, using it to make trades can create an uneven playing field and is thus illegal in many jurisdictions. The other options describe various trading practices but do not capture the essence of insider trading. Trading on public information, for instance, is legal and involves using data that is readily available to all investors. Conducting market analysis also involves legal and permissible activities related to investing. Lastly, trading on regulated exchanges refers to where transactions occur, which doesn’t relate to the legality or morality of the information used to make those trades.

Insider trading refers specifically to the practice of buying or selling securities based on nonpublic, material information about a company. This information is considered "material" if it could influence an investor's decision to buy or sell the security. Since this information is not available to the general public, using it to make trades can create an uneven playing field and is thus illegal in many jurisdictions.

The other options describe various trading practices but do not capture the essence of insider trading. Trading on public information, for instance, is legal and involves using data that is readily available to all investors. Conducting market analysis also involves legal and permissible activities related to investing. Lastly, trading on regulated exchanges refers to where transactions occur, which doesn’t relate to the legality or morality of the information used to make those trades.