Late Trading and its Negative Impacts

Late Trading
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Late Trading
Late trading is the act of purchasing or redeeming mutual fund shares with net asset value (NAV), which typically happens at 4 PM Eastern Time when a trade closes (Cornew, 2005). A late trader receives prices of the determined NAV, and this breaches the laws of federal security that guide the pricing of mutual fund shares. Late traders defraud investors of the mutual funds by gaining an advantage that is not available to all investors.
Late trading is riddled with numerous negative impacts on those who want to trade. Some of the risks connected to late trading entail wide spreads, more volatility, less liquidity, and elevated competition from institutional investors (Shichor, 2011). Late trading impedes one from seeing or acting upon quotes. Some firms limit traders to their quotes, and this means that one cannot complete a trade with a willing investor at a different trading system when late trading. During late trading, there is a lack of liquidity since there are no willing buyers and sellers of most stocks. W...