Why is insider trading considered unethical?

Insider trading is considered unethical primarily because it undermines market fairness. This practice occurs when individuals with access to non-public, material information about a company use that information to make trading decisions before that information is made available to the general public. This creates an uneven playing field where insiders have an unfair advantage over regular investors, who do not have access to the same information. Such disparities can damage the integrity of the market, as they erode trust among investors and can lead to a lack of confidence in the fairness of the financial system. When investors believe that the market is rigged in favor of those with insider knowledge, it can discourage participation and investment, ultimately harming the market's overall efficiency and functioning.