Insider trading involves the buying or selling of securities by individuals who have access to non-public information about a publicly traded company.
The non-public information could be related to the company's financial performance, upcoming product launches, mergers and acquisitions, or any other information that could affect the stock price.
Insider trading is illegal because it gives individuals an unfair advantage over other investors who do not have access to the same information.
For example, if a company's CEO knows that the company is about to report better-than-expected earnings, and he buys the company's stock based on that information, it would be considered insider trading.
Similarly, if a company's CFO knows that the company is about to sign a lucrative contract with a major client, and he sells the company's stock based on that information, it would also be considered insider trading.
Insider trading can also occur when an insider tips off someone else about non-public information, and that person uses the information to trade in the company's securities.
For example, if an executive assistant overhears a conversation between the CEO and CFO about an upcoming merger, and she tells her brother, who then buys the company's stock based on that information, it would be considered insider trading.
Insider trading can lead to criminal charges and severe penalties, including fines and imprisonment. It can also damage a company's reputation and erode public trust in the financial markets.
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