Late-Day Trading

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Hedge Fund

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

    1. An unexecuted order that is still valid. An open order is ...
  3. Market Timing

    1. The act of attempting to predict the future direction of the ...
  4. Net Asset Value - NAV

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

    The end of a trading session in financial markets. "Close" refers ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
RELATED FAQS
  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. Is there a situation in which wash trading is legal?

    Wash trading, the intentional practice of manipulating a stock's activity level to deceive other investors, is not a legal ... Read Full Answer >>
  4. What action is the SEC likely to take on 12b-1 fees?

    The Securities and Exchange Commission (SEC) may take action to impose greater regulation on how 12b-1 fees are used, or ... Read Full Answer >>
  5. What is considered a reasonable 12b-1 fee?

    A reasonable 12b-1 fee is generally considered to be 0.25% of the assets of the mutual fund. The maximum amount allowed for ... Read Full Answer >>
  6. What are some of the most common mutual funds that give exposure to the retail sector?

    There are a number of mutual funds that give exposure to the retail sector. Three of the most popular funds are the Fidelity ... Read Full Answer >>
Related Articles
  1. Options & Futures

    Hedge Funds: Higher Returns Or Just High Fees?

    Discover the advantages and pitfalls of hedge funds and the questions to ask when choosing one.
  2. Options & Futures

    Hedge Funds Hunt For Upside, Regardless Of The Market

    Hedge funds seek positive absolute returns, and engage in aggressive strategies to make this happen.
  3. Mutual Funds & ETFs

    Canary Capital Partners: Anatomy Of A Scandal

    Learn how a hedge fund scammed its way to profits and caught investors off-guard.
  4. Mutual Funds & ETFs

    Mutual Fund Basics Tutorial

    Learn about the basics - and the pitfalls - of investing in mutual funds.
  5. Mutual Funds & ETFs

    The Daily Routine Of A Hedge Fund Manager

    What does a hedge fund manager's day really look like? Investopedia provides an inside look at the routine.
  6. Chart Advisor

    Four Great Stocks for Day Traders

    Four day trading stocks that offer volume and a consistent history of big intraday price movements.
  7. Mutual Funds & ETFs

    Why Mutual Funds are Still Better than ETFs

    Mutual funds might not be as sexy as they used to be, but they offer some advantages over ETFs – especially for certain types of investors.
  8. Trading Strategies

    IPO Flippers And The Companies Who Hate Them

    Learn how flipping activity affects an initial public offering.
  9. Professionals

    Why ETFs Often Edge Out Mutual Funds

    A deep look reveals why — in most instances — ETFs beat out mutual funds.
  10. Mutual Funds & ETFs

    How Private Equity and Hedge Funds are Taxed

    Private equity and hedge funds offer an appealing tax structure for those who can afford to invest in them. Here's why.

You May Also Like

Hot Definitions
  1. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  2. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  3. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  4. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  5. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  6. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!