1. Insider trading is illegal when the trades were made using information that is material and non-public.
a. Material information is information that could influence an investor's decision to buy or sell a stock. If deciding to buy or sell would change because of this info, it’s material.
b. Non-public information is information that has not been shared with most people who trade stocks. If most people don’t know it yet, it’s non-public.
2. In your own words, explain how illegal insider trading can give someone an unfair advantage.
People with insider information can buy or sell before the public knows the news. This lets them profit from moves that others don’t know are coming, which is unfair because most investors are trading without that knowledge.
3. Most famous examples of insider trading involve CEOs, Directors, and other senior-level roles of corporations. Why do you think it’s still important for the average investor to be aware of insider trading practices?
It helps investors understand why markets should be fair. Knowing about insider trading reminds people to be careful, follow rules, and rely on public information to make decisions, not secret tips.