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What is insider trading?

Insider Trading

The term "insider trading" actually describes two different actions. Legal insider trading is when company officers trade the stock of their own company. As long as they record their trades with the SEC, this action is legal. Illegal insider trading occurs when someone trades a stock based on nonpublic information. The SEC is strict about illegal insider trading because when some people are allowed to take advantage of privileged information, they receive an unfair advantage. Those without connections can lose faith in the fairness of the market.

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