Insider trading is defined as?

• A. Trading based on public information
• B. Trading based on non-public information
• C. Trading by company insiders only
• D. Trading in the open market after hours

Answer: (B)

Insider trading is trading a security based on information that would influence a reasonable investor’s decision and that is not yet available to the public. The information must be material, meaning it could affect the stock’s price or the judgment of an investment, such as upcoming earnings results, a merger or acquisition, regulatory approval, or a major contract. Because this information isn’t public, using it gives an unfair advantage. It’s not limited to company insiders; anyone who has access to such information or receives a tip and trades on it can be considered to be insider trading. Trading on information that is already public is allowed, and buying or selling in after-hours markets isn’t the defining feature.