Unethical Edges in the Market: Insider Trading vs. Front Running

Current Context: Both insider trading and front running involve taking unfair advantage in the stock market, but they differ in their source of that advantage:

• Insider Trading: This is illegal. Here, someone with access to confidential, non-public information about a company (like an upcoming merger) uses that knowledge to buy or sell the company's stock before the information becomes public. This insider gains an unfair edge over other investors.
• Front Running: This is also illegal. Here, someone, typically a broker, exploits their knowledge of upcoming large orders to buy or sell a security before the order is executed. This drives the price up (for a large buy order) or down (for a large sell order), allowing the front runner to profit before the price movement affects everyone else.

Question:

1 What is insider trading?

• A) Trading based on public news
• B) Trading based on confidential, non-public information
• C) Trading based on market rumors
• D) Trading based on technical analysis

Answer: B) This is illegal. Here, someone with access to confidential, non-public information about a company (like an upcoming merger) uses that knowledge to buy or sell the company's stock before the information becomes public.