What constitutes insider trading?

Insider trading refers specifically to the buying or selling of securities based on non-public, material information about a company. This means that an individual has access to critical business information that has not yet been disclosed to the general public, which can significantly affect the stock’s price once it becomes public knowledge. Engaging in transactions with this information can lead to unfair advantages in the market and is deemed illegal, as it undermines investor confidence and the integrity of the financial markets.

The other options involve activities that do not constitute insider trading. Trading based on publicly available information is legal and represents normal market behavior. Exchanging securities with approved brokers is part of standard trading procedures and does not inherently involve any unethical practices. Similarly, investing without a broker's approval falls within personal investment strategies and does not imply any improper use of confidential information. Therefore, the second option accurately identifies the essence of insider trading.