What is the difference between legal and illegal insider trading?

Insider trading refers to the buying or selling of a security by an individual who has access to material, non-public information about that security. While insider trading itself is not illegal, the use of material non-public information to make trading decisions is illegal.

Legal insider trading occurs when insiders, such as company officers and directors, purchase or sell shares of their own company's stock in accordance with regulatory guidelines and after making proper disclosures. For instance, when insiders trade on the basis of publicly disclosed information or file required reports with the SEC about their trades, it is considered legal insider trading.

On the other hand, illegal insider trading occurs when insiders use material non-public information to make trades or tip off others who then use that information to make trades. This can include buying or selling stock, options, or other securities based on non-public information that could affect the stock price. It is also illegal for insiders to pass along information to others who then use it to make trades.

The key difference between legal and illegal insider trading is the use of material non-public information. Legal insider trading is based on publicly available information or information that has been properly disclosed, while illegal insider trading involves the use of non-public information for personal gain.