Insider trading is when someone with non-public, significant information about a public company’s shares trades in that stock for whatever purpose. Depending on when the insider makes the deal, insider trading can be either unlawful or legal. When relevant knowledge is still classified as confidential, it is illegal to trade on it, and this type of insider trading carries severe penalties.
Insider trading is essentially in a nutshell the trading of stocks or securities of a company/corporation by a person or persons with knowledge or information about the company that is not public knowledge.
Unpublished price sensitive information refers to that sensitive information of the company, the disclosure of which could lead to rising and fall in the value of shares.
Insider trading is illegal as the investor has an undue advantage over the market. SEBI has come up with stringent laws to protect the interests of the investors.
For example, you are working in ABC company, and as an employee, you get to know that the promoter of the company is about to leave. This would create a huge impact on the value to stocks, right? If an outsider comes to know about this information before it is even published, or communicated with the investors, then the profit he made would be undue gain, and this undue gain made from the information which is still unpublished is called Insider trading.