What defines insider trading?

Insider trading is defined as the illegal practice of trading stocks based on non-public information. This means that an individual gains an unfair advantage in the stock market by utilizing confidential information that is not available to the general public, which can often lead to ethical and legal violations. For example, if someone who works for a company knows about upcoming announcements such as mergers or earnings reports and trades stocks based on that insider knowledge, this constitutes insider trading.

Understanding the importance of this definition highlights why such practices are illegal; they undermine the principles of fair market competition and investor trust. Regulations are in place to deter this type of activity, ensuring that all investors have equal access to information that could influence their trading decisions. The other options do not accurately capture this definition as they relate to legitimate trading activities or practices based on available market data, which are typically permissible and do not involve the exploitation of non-public information.