What is the definition of insider trading?

Insider trading is defined as the buying or selling of securities based on non-public material information. This definition highlights the illicit nature of the practice, as it involves trading based on information that is not available to the general public, which gives the insider an unfair advantage over ordinary investors.

The focus on "material information" is crucial; it refers to information that could influence an investor's decision to buy or sell the security. Since this information is not available to everyone, its use in trading is strictly regulated and often illegal, meant to maintain a level playing field in the securities markets.

In contrast, buying or selling based on public information does not constitute insider trading, as all investors have equal access to that information. Similarly, trading based on recommendations from analysts or exchanging securities between corporations is permissible and does not involve the exploitation of non-public information. Therefore, the correct definition of insider trading specifically involves the use of confidential, material information for trading decisions.