What does the term 'insider trading' mean?

The term 'insider trading' specifically refers to the activity of buying or selling a security based on non-public, material information. This practice is considered illegal and unethical because it violates the principle of fairness in the securities markets. Insider trading typically involves individuals who have access to confidential information about a company, such as executives, employees, or other insiders, who then exploit that information before it becomes available to the general public.

When someone uses this insider knowledge to make trades, they gain an unfair advantage over other investors, which undermines market integrity and investor confidence. Consequently, regulatory bodies such as the SEC actively monitor for signs of insider trading and enforce regulations to maintain a fair marketplace.

Other options reflect different aspects of trading or regulatory concerns but do not accurately capture the essence of insider trading. For example, trading based on public information is entirely legal and does not constitute insider trading. Similarly, executing trades during non-business hours does not relate to the ethical concerns of insider trading, and trading without proper registration is a separate regulatory issue that pertains to the legality of operating as a trader.