Define insider trading.

Insider trading refers specifically to the illegal buying or selling of securities based on non-public, material information. This definition is crucial because it highlights two key components: the information must be both non-public and material. Non-public information is not available to the general public and gives the individual an unfair advantage in making investment decisions. Material information is any information that could influence an investor's decision to buy or sell the stock, such as earnings reports, news of mergers or acquisitions, or any significant changes in company management or policy.

This practice is unlawful because it undermines the integrity of the financial markets, which rely on equal access to information for all investors. Thus, when individuals with insider knowledge, such as company executives or employees, trade stocks based on that information, they violate securities laws and can face severe penalties, including fines and imprisonment.

The other options do not encapsulate the legal ramifications and essential elements of insider trading. Some describe legal trading practices or focus on aspects not directly related to the insider's obligations regarding non-public information.