Which term describes trading a stock based on nonpublic information?

Which term describes trading a stock based on nonpublic information?

• A. Short selling
• B. Market manipulation
• C. Dividend capture
• D. Insider trading

Answer: (D)

Insider trading is trading a stock based on information that isn’t public. When someone uses material confidential knowledge—like an upcoming merger, earnings surprise, or other news—to buy or sell shares before that information becomes public, they gain an unfair advantage and often violate securities laws designed to keep markets fair. Other terms describe different ideas: short selling involves selling borrowed stock to profit from a price drop, market manipulation refers to deceptive actions to mislead others or move prices, and dividend capture aims to profit from a stock’s dividend around the ex-dividend date, not from nonpublic information. So the concept that fits trading on nonpublic information is insider trading.

Insider trading is trading a stock based on information that isn’t public. When someone uses material confidential knowledge—like an upcoming merger, earnings surprise, or other news—to buy or sell shares before that information becomes public, they gain an unfair advantage and often violate securities laws designed to keep markets fair. Other terms describe different ideas: short selling involves selling borrowed stock to profit from a price drop, market manipulation refers to deceptive actions to mislead others or move prices, and dividend capture aims to profit from a stock’s dividend around the ex-dividend date, not from nonpublic information. So the concept that fits trading on nonpublic information is insider trading.