Approach to placing ETF orders

[Bored Beyond Belief]

What is everyone's general mindset and process for placing ETF orders? Do you place an limit order at the ask price? After close or wait until the market is open? Just place a market order? Something else?

I'm adding money each month to my existing ETF portfolio but I really didn't understand how much anxiety I would feel when placing orders because of the bid/ask spreads. I'm looking for a simple system, kind of "fire and forget".

Thanks in advance!

 

[pb4uski]

This process is new to me as well. I usually look at the range of trading the prior day and put in a limit order at the prior day low.

 

[younginvestor2013]

I always just place a market order within trading hours. If it is a large enough ETF (like a Vanguard index one), then I think you usually get around/close to the most recent trade price.

I do not like to place market orders outside trading hours, though. If you place an order outside trading hours at market, the price per share will not be determined until the open of the market for the next session so it may vary from the prior day's share price.

 

[sengsational]

What is everyone's general mindset and process for placing ETF orders? .... I'm looking for a simple system, kind of "fire and forget".

Welcome "Bored" to the board!

I've only done a dozen or so trades, so I'm no expert. But the reason I'm commenting is to say that you're right, there is more anxiety involved than when you just get the daily closing value of a mutual fund.

My approach, so far, has been to look at the current price graph for the day and pick a price that, if I ended-up paying it, I'd be okay with. Then I go in with a limit order. Sometimes I'm not in a big hurry to trade, so I pick a lower value. And once, I didn't get the trade and it went straight up from that day and it cost me much more than the couple of cents I was trying to save.

I think it's all computerized matching of orders, so there's no person looking at your order and saying "what a doof...he came in with a limit buy order that's higher than market". Or "I'll skip over that limit order and take preference on the market order, even though the limit order could trade". At least I think that's the way it works.

The other thing is whether to go with round lots or not. I usually do go in increments of 1000, but go on increments of 100 often too. But when my orders get filled, I often get dribs and drabs. I'm not sure how the order matching works and not sure if even increments make any difference.

 

[Live And Learn]

Wow - I just place a market order. I follow the 'don't try and time the market' rule and picking my price during intraday trading feels like 'timing'. I guess I could get a moderaterly better price if I did limit orders but since I'm such a BAD market timer I'd probably end up like sengsational above and not getting the ticker at all.

 

[aja8888]

I usually wait until an hour or so of the trading day is over and things (hopefully) settle down. Then I set a limit order just under the ask price and not too far over the bid price. "Usually", the order closes quickly.

 

[Lsbcal]

I place a limit order 1cent above the ask (for a buy). Has resulted in quick execution and at ask or slightly below. Not wise to do market orders IMO.

 

[Animorph]

I usually have a specific price target in mind and set a limit order at that price, buy or sell.

Some ETF's have a fairly small trading volume. The bid and ask price might be 0.05 apart (just an example). You will do best with those by setting a limit price equal to the bid price (when buying) or the ask price (when selling), or somewhere between if you are more motivated. No reason you can't get the bid or ask price, you just may wait a bit. Setting a limit price has the risk that your order never fills, unlike settling for a market price.

Some ETF's are heavily traded and maintain a fairly reliable 0.01 bid/ask spread. I don't mind using a market order in this case. You ensure the order is completed, though you are giving up your 0.01/share by not getting in line with a limit order at the bid or ask price.

You will find more stable pricing during the middle hours of the day, with better trading volume and smaller spreads. However, if I'm selling an ETF in order to buy a mutual fund I prefer to sell the ETF at the end of the day so that the price of the ETF reflects closing prices as best it can, just like the MF. If you have a set price in mind, entering a limit order before the start of the day can sometimes get you a good price during the more volatile morning or late afternoon hours.

Beyond that, you can market time to your heart's content trying to get the lowest price of the day. Good luck with that, but it can be fun.

 

[Bored Beyond Belief]

Just what I was looking for, thanks so much for everyone's input.

My mistake was placing the orders after hours, the bid/ask spread was huge in some cases (couple dollars). During hours the spread was only a few cents and I'm cool with that. I just placed a limit order at the ask price. The total spread for all my orders was only about $20 despite buying 1,500 units. That's $20 well spent to get this off my to-do list. All the orders have filled now.

Thanks again!

 

[Onward]

Market orders. My decades-long holding period makes intra-day blips insignificant. And I want to make sure I get my shares.

I do avoid trading in the first 15 minutes of the trading day, though. I've experienced some craziness there that I would just as soon avoid by waiting a few minutes.

 

[clifp]

I always use limit order for both buys and sells. Sometimes it takes a day or two to execute the sale. However, there is always the risk (or opportunity) of a flash crash.
Off course the danger with stop loss is even worse.

For instance last week the editor of the Morningstar Dividend wrote this.

This week, the risk of using stop orders was affirmed by another of those miniature "flash crashes" that visited one of our portfolio holdings. In the first minute of trading on Thursday, the price of Harvest holding American Electric Power AEP plunged more than 50% to a low of $22.28 before trading was halted. (A similar plunge hit the Florida-based utility NextEra Energy NEE as well.) No fundamental change in either business was involved, and once the computer-driven madness was driven away, both stocks recovered. But while the New York Stock Exchange opted to bury these humiliating developments by excluding those prices from the day's data, it let the trades stand. Someone or something--my guess would be a computer--made a lot of money in a matter of seconds by buying AEP shares at an absurdly discounted price. Someone else--possibly an individual investor with a stop order--took a comparably absurd loss.

In the case of ETFs, I think market orders, placed during normal trading hours, are probably safe, but I certainly would avoid them during off hours, and for any thinly trade stocks or ETFs.

 

[Hamlet]

Yeah, I always thought stop loss orders were in general a bad idea, and now with the potential for flash crashes they are a really, really bad idea.

In general, I just use market orders during the trading day, unless I'm buying or selling something thinly traded.

Limit orders are a little safer though.

I always use limit order for both buys and sells. Sometimes it takes a day or two to execute the sale. However, there is always the risk (or opportunity) of a flash crash.
Off course the danger with stop loss is even worse.

For instance last week the editor of the Morningstar Dividend wrote this.


In the case of ETFs, I think market orders, placed during normal trading hours, are probably safe, but I certainly would avoid them during off hours, and for any thinly trade stocks or ETFs.