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What is after hours trading?

Investors across Canada know the stock markets shut down at a set hour every day.

While most of the action does happen during business hours. But there's something else going on too, called after hours trading.

You might even be participating in this after hours trading and not know it.

If you're investing through a big mutual or pension fund, your fund manager might be using your money to do after hours trading.

Institutional trading -- this includes pension and mutual funds -- does happen after the closing bell. When North American exchanges have closed up for the day, these institutional buyers and sellers meet and complete their trades mainly through an electronic network called Instinet, operated by Reuters.

Even though these trades happen outside market hours, they can still affect a stock's next-day opening price. Other post-market activity like a significant company announcement, of course, may also influence this price.

If a company releases a lower-than-expected earnings report, it wouldn't be surprising for its shares to drop in after hours trading. This would give investors a clue about the stock's direction when trading resumes the next day.

Trading through Instinet generally excludes individual investors, though some discount brokers in the United States offer this service. There are other after hours trading options available to Canadians.

There's an opportunity to trade on the Toronto Stock Exchange between 4 p.m. and 5 p.m. in what's referred to as a crossing session.

The crossing session lets firms put trades through at the last traded price. Prices don't change during that hour. It's not like the regular market activity during the day, where buyers and sellers negotiate on a sale price through a bid/ask auction process in which prices do move up and down.

Trades completed in the TSE's crossing session are included in the day's final volume and closing prices. The crossing session is open to the public, if they are trades that can go through and the brokerage firm can cross the trade.

There is another type of after hours trading that lets investors continue investing long after local markets close. Partly because of the Internet, investors can keep trading in markets around the world after most North American markets turn off the lights.

Investors can trade around the clock in markets from Tokyo to Hong Kong and London.