Insider trading refers to the buying or selling of stocks or other securities based on non-public, material information about a company. This practice is illegal because it gives an unfair advantage to those with access to confidential information, undermining the integrity of financial markets. Regulatory bodies, such as the Securities and Exchange Commission (SEC) in the United States, monitor trading activities to prevent insider trading. Violators can face severe penalties, including fines and imprisonment, as it is considered a serious offense that can harm investors and erode trust in the financial system.