Late-Day Trading


DEFINITION of 'Late-Day Trading'

An unethical (if not illegal) practice of a hedge fund purchasing and then selling securities (usually shares of a mutual fund) after the close of a trading day, but making the transactions appear as though they occurred before the market close.

BREAKING DOWN 'Late-Day Trading'

For mutual funds, net asset value is (NAV) determined at 4pm EST (the market close), and it does not change until the market opens again. Hedge funds involved in late-day trading work out a special relationship with a mutual fund that, usually for higher-than-average fees/commissions, allows the hedge fund to buy and sell mutual fund shares after hours but record the trade at 4pm. This practice gives the hedge fund an opportunity to profit when material information affecting the fund is released after the market close. In such cases, because it is stagnant, the NAV may not represent the actual asset value, which won't materialize until the market opens again - at which time late-day traders sell their shares at a profit.

  1. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...
  2. Market Timing

    1. The act of attempting to predict the future direction of the ...
  3. Open

    1. An unexecuted order that is still valid. An open order is ...
  4. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  5. Net Asset Value - NAV

    A mutual fund's price per share or exchange-traded fund's (ETF) ...
  6. Close

    The end of a trading session in financial markets. "Close" refers ...
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  1. What is late-day trading? Why is it any different from buying and selling stocks ...

    Late-day trading is the illegal buying and selling of mutual funds after regular market hours. This practice is wrongful ... Read Full Answer >>
  2. What is a mutual fund's NAV?

    Net asset value (NAV) represents a fund's per share market value. This is the price at which investors buy ("bid price") ... Read Full Answer >>
  3. Can hedge funds trade penny stocks?

    Hedge funds can trade penny stocks. In fact, hedge funds can trade in just about any type of security, including medium- ... Read Full Answer >>
  4. How liquid are Vanguard mutual funds?

    The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its ... Read Full Answer >>
  5. Are hedge funds regulated by FINRA?

    Alternative investment vehicles such as hedge funds offer investors a wider range of possibilities due to certain exceptions ... Read Full Answer >>
  6. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>

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