What is insider trading?

Insider trading is a term used to describe when someone uses nonpublic information to buy or sell securities. It is illegal in many countries, including the United States, and in the state of California. The United States Securities and Exchange Commission (SEC) defines insider trading as the buying or selling of a security by someone who has access to material information about the security that is not available to the public. It is illegal for insiders – people in possession of material, nonpublic information – to trade or encourage others to trade on the basis of such information. Examples of insider trading include corporate officers, directors, and major shareholders buying or selling shares in their own companies on the basis of nonpublic information. It can also include employees of financial institutions buying or selling securities of their employers on the basis of confidential information. Investors who engage in insider trading can be charged with a criminal offense and face large fines, prison sentences, and other punishments. It is important to remember that while insider trading may be profitable, it is illegal and punishable by law.

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