Approaches to placing ETF trade orders?

msf

How do people place orders for ETFs: market or limit and if limit, how is that limit chosen?

As someone who is primarily an OEF investor, I like the idea that if I pay $100 to invest in a fund, then at the end of the day I have $100 worth. So I'm satisfied if I don't "overpay" for an ETF, i.e. I don't wind up with less than $100 in shares at the end of my purchase day. I don't have to make a killing, I don't have to try to buy at the bottom of the day.

Yesterday I bought a ton of an ETF, one with a very stable price. I finally just placed a market order, figuring that best/worst case I'd come out a sawbuck ahead or behind. Not worth fretting over. Equity ETFs are very different. How do you approach these trades?

yogibearbull

I look at bid-ask spreads that can be 25c-30c for some small ETFs.

If I want to buy right away, I enter the limit price at ask, or in the middle of the spread.

If I can wait a while, I would just enter limit price GTC few cents below the bid. Often, it got filled within the week, but sometimes, the price ran away.

JD_co

ETFs that only trade under 30K shares per day usually have wider spreads, which can make trading them more difficult.

If you get too stingy in a bull market that ticks up constantly and you go a few cents below the bid, you can end up with stale open (buy) trades. This has been a recurring issue for me the past few months.

Observant1

"How do people place orders for ETFs: market or limit and if limit, how is that limit chosen?"

I confirm that an ETF has adequate liquidity before making a purchase.
Recent intraday highs/lows are checked to gauge an ETF's daily price range.
Limit orders are always used when buying/selling ETFs (I've only dealt with equity ETFs).
Trading is avoided during the first/last 45 min. or so that the market is open.
When purchasing ETFs, my limit order is sometimes priced within the bid/ask spread range
but it may be below the current bid price at times.
It may take several days to fill a "low-priced" order—sometimes these orders won't get filled.

msf

Thanks for the comments. Personally I don't generally take flyers. Even if I did, I'd be buying in the expectation of making money (i.e. price rising). So I'm disinclined to try yogi's suggestion of bidding a few pennies below current ask price. But if one really doesn't care if the ETF gets away (no purchase), it's an interesting way to make a wager on volatility.

I look at more "mainstream" ETFs. Even new sector ETFs like BILT (just started July 31) can have volume around 100K. (BILT took two weeks to reach that level.) Still, if one is looking at esoteric ETFs, JD_co's call to pay attention to the spreads is worth heading.

I had read about the rule of thumb of not trading within 30-60 minutes of the open or close. Unpredictable volatility from orders getting executed at the open and traders rushing to finalize positions near the close.

The ETF I purchased a couple of days ago (a bond ETF) had a spread of a penny. No way I could find to split the difference. But I was seeing transactions at half penny prices. So I gambled and placed a market order. I got the price between bid and ask (i.e. half penny pricing). Did one of the "asks" come down the half penny (how?), was there a matching market order to sell? How do non-whole cent transactions arise?

Right now I'm looking to buy an ETF that tends to have a bid/ask spread of a few cents. I might just take a look at the intraday chart around noon on the day I trade. Assuming the current price is somewhere comfortably between the highs and lows, put in a limit order between bid and ask (as Observant1 sometimes does). I'll likely be left with the feeling that I might have done better. But this seems like a reasonable, disciplined approach. So I won't beat myself over the head if it turns out I didn't get the best price.

It's nice to be reassured there is no "secret formula" for placing these trades. A little common sense, some discipline, and a willingness to accept the fact that one won't always be right should go a long way.

hank

Rely mostly on a few OEFs for the large core holdings. But my etf / cef holdings have grown in number with the incorporation of 2 Fidelity baskets. I assume @msf would also consider CEFs as well as individual equities pertinent to the discussion.

Usually (for etfs / CEFs) I enter “market” and let Fidelity shop price. Sometimes with thinly traded securities that turns up blank. You’ll get a message that the amount entered is “excessive” or something like that. Then, I toy around with lesser quantities and begin using various limit orders. Often, setting a limit price gets around the issue. I don’t know why.

Almost invariably Fidelity comes up with better price than my order specified. So @msf sounds correct that it’s not worth fretting about (unless it’s a very large order). When trading outside regular market hours be very careful. You’ll get the limit price you specify. And, if Fidelity can’t get what I want for the limit price, I sometimes start chipping away with progressively lower bids. There’s actually an option displayed that allows you to “modify” the existing order. I do not like leaving an order pending for hours on end. If they can’t fill in within 10 or 20 minutes, I usually kill it and try later.

I wouldn’t be overly discouraged if liquidity surfaces as an issue. I’ve yet to fail buying or selling the desired number of shares of an etf or CEF. Persistence (repeatedly bidding in smaller amounts) pays off and the price generally remains fairly stable. I’ve entered as many as 15 or 20 orders to buy or sell a security within an hour’s time and have yet to fail to get it to work as intended.
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Off-topic here - ISTM that if one is greatly concerned about potential black swan events (I am), constructing your own hedged position (within the broader portfolio) using etfs and cefs is safer than relying on some fund manager’s alternative fund offering (affectionately known as a black box).” - Albeit, some black-boxes appear darker inside than others. With your own hedge position you better understand what’s inside and how the thing works, With some types of “alternative” funds you’re taking a leap of faith that the fund will hold together and work as intended under dire conditions, possibly while experiencing adverse flows. My humble 2-cents.