JD Next Practice Exam 2025 – Complete Preparation Guide

Question: 1 / 400

What is 'insider trading'?

A legal method of trading stocks

Trading stocks based on publicly available information

Trading stocks based on non-public information that is illegal

Insider trading refers specifically to the act of trading stocks based on non-public information, which is considered illegal in many jurisdictions. This involves individuals, typically corporate insiders, who have access to confidential information about the company's performance or future plans that has not yet been disclosed to the public. Because this kind of trading undermines the fairness and transparency of the financial markets, regulatory bodies impose strict penalties on those who engage in such practices. The distinctive aspect of insider trading is the use of this non-public knowledge to make investment decisions, which can lead to an unfair advantage over other investors who do not have access to that information. This illegal practice is closely monitored by regulatory authorities like the SEC in the United States, as it erodes public trust in the equity markets.

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A strategy to reduce tax liabilities through stock trading

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