What constitutes insider trading?

Insider trading refers specifically to the practice of buying or selling a security based on material, non-public information about that security. This can involve knowledge about pending corporate developments, financial performance, or any other critical information that has not yet been released to the general public. The core issue with insider trading is that it creates an unlevel playing field in the financial markets, where some investors have access to exclusive information that can impact stock prices, while others do not.

In contrast, trading based on public information or market trends occurs in a transparent manner where all investors have access to the same information. This is permitted and forms the basis for fair market activity. Trading only during market hours also does not inherently connect to insider trading, as it simply reflects the logistical rules for trading rather than the legality of the information used for trades.

Thus, the occurrence of trading based on material, non-public information is what constitutes insider trading, and this practice is illegal due to its potential to manipulate market integrity and investor trust.