What does 'insider trading' refer to?

Insider trading refers specifically to the buying or selling of a security based on nonpublic, material information about that security. This means that an individual uses confidential information that is not available to the general public to gain an advantage in the financial markets. Such actions are considered illegal because they violate the principle of fair trading and transparency in financial markets. Insider trading can undermine investor confidence and the integrity of the market since it creates an unfair playing field where some investors have access to crucial information that others do not.

The definition aligns with established securities laws and regulations, which prohibit such practices to maintain a level of fairness in securities transactions. In essence, those who engage in insider trading are exploiting privileged information, leading to potential legal repercussions and penalties.