Future Business Leaders of America (FBLA) Business Law Practice Exam

What term describes buying or selling shares based on non-public information?

1. Insider trading

2. Market manipulation

3. Front running

4. Speculative trading

The correct answer is: Insider trading

The term that describes buying or selling shares based on non-public information is insider trading. Insider trading involves individuals who have access to confidential or proprietary information about a company making trading decisions based on that insider knowledge. This practice is illegal because it violates the principle of transparency and fairness in the securities markets, giving an unfair advantage to those with access to such information. In contrast, market manipulation refers to deceptive practices aimed at influencing the price of securities in order to create an artificial appearance of supply and demand. Front running involves traders executing orders on a security for their own account while taking advantage of advance knowledge of pending orders from their clients. Speculative trading is characterized by high risk, where traders attempt to profit from short-term market movements without relying on inside information. Each of these other terms has its own specific definition and implications in the context of financial trading, distinguishing them from the act of insider trading.