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Bid/Ask Spread
Old 02-21-2010, 04:12 PM   #1
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Bid/Ask Spread

After you buy an ETF on Vanguard, is there any way to tell what the bid ask spread was?

Is there any way you can minimize this before you buy a stock or ETF?

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Old 02-21-2010, 06:40 PM   #2
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Presumably when you get a real-time quote, you see the bid and ask.

Presumably when you enter an order, your broker shows the real-time quote at that time, so you see the bid and ask.

I think there are some places that keep the data say every minute, but I do not know how to look up historical bid/ask. One of my brokers charts the bid/ask in real-time, so you can see the current bid/ask and then it builds up to the 10-min or 30-min previous (i.e. you wait 10 minute and you still see the 10 minutes of bid/ask spread starting from when you started the plot).

How to minimize? Trade very liquid ETFs on very active days in the markets. Use limit orders.

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Old 02-21-2010, 06:55 PM   #3
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I always use a limit order, setting a price something like a penny below the current bid price if I'm trying to buy. There is usually enough volatility that the trading price will move past that limit price sometime during the day. Kind of like no spread at that rate. Some of the Vanguard ETF's may not trade that often, in which case try setting a limit price just a penny above the current bid price. That puts you next in line when someone wants to sell. Have patience, and don't chase the price, it's unlikely that it will suddenly go up and never come back down, even if it takes a few days.

I don't know of a way to check the limit price at some time in the past, but the ranges are usually consistant from day to day. One thing you could do is check the end of day NAV at Morningstar anytime the next day and see if you bought below or above the NAV for that night.
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Old 02-21-2010, 07:31 PM   #4
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Originally Posted by John Galt View Post
After you buy an ETF on Vanguard, is there any way to tell what the bid ask spread was?

Is there any way you can minimize this before you buy a stock or ETF?
With Vanguard you might just continuously query for bid/ask prices by asking for real time quotes in another screen after you've placed your order. I'm assuming you've reached the order status screen with your current order and checking to see if it is filled. You can also get quotes (as I recall) if you select the change order screen. Note you do not actually have to change your order to use the screen. I believe you can have multiple screens open at the same time.

Regarding the second question, there are probably many sophisticated strategies for capturing the best price at time of execution. But most of the bid-ask spreads I've seen are in the 1 to 3 cent range. On even a $100k trade that is really not much e.g. $25 on a $40 stock. So is it worth it? On a short term basis you are competing against people & machines that probably have better trading tactics and information.

My way to cope with this is to just get the fastest execution once I've decided to do a trade. If buying in a declining market maybe put in a limit order at the bid or midway between bid/ask. If buying in a rising market just accept the inevitable and put in a limit order at the ask. You will pay the spread in the later case but this beats the occasional time when you wind up chasing the price ever higher before getting an execution.
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Old 02-21-2010, 07:48 PM   #5
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Be aware that even with limit orders you are still subject to the bid/ask spread. What happens is that the ask moves down to your bid and other bids move lower. Your bid becomes the best bid that matches the lowered ask and the trade takes place.
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