One may be incarcerated - for type of illegal trading (7)
I believe the answer is:
insider
'trading' is the definition.
(insider trading is a kind of trading)
I can't explain the remainder of the clue.
Can you help me to learn more?
(Other definitions for insider that I've seen before include "Member of charmed circle" , "This trading is illegal, based on confidential information" , "One privy to restricted information" , "Accepted member of group - may be privy to scarce information" , "Accepted member of group, in the know" .)