Reliable ETF Bid/Ask spread information

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Clivus1
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Joined: Wed Feb 06, 2013 8:41 pm

Reliable ETF Bid/Ask spread information

Post by Clivus1 »

I'm trying to determine the lowest cost way to own the total domestic stock market in my 401k using ETFs. My account is at Schwab and I am able to trade Schwab ETF products without commission. The vast majority of my portfolio is at Vanguard and I use VTI for my domestic equity holdings. I am having trouble making an a proper comparison because I can't seem to find 30 day average bid/ask data for Schwab products. I also incur a $9 commission with each transaction if I purchase VTI. Assuming 12 transactions a year with $17,500 contributed this gives VTI a 0.57% headwind on commissions alone.

VTI 30 day average bid/ask is .01 according to vanguard data: https://institutional.vanguard.com/VGAp ... daskspread

Does anyone know a reliable source for average bid/ask spreads? Morningstar posts data, but it is real time and not average. If you look there when the market is closed the spreads are huge and inaccurate.
stlutz
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Re: Reliable ETF Bid/Ask spread information

Post by stlutz »

Goto indexuniverse.com to their analytics and data page and punch in the ticker. Average spread is one of the metrics they show.

Or, Fidelity shows it as well. Bring up a quote for it and click on the Research tab. (You don't have to be a client
livesoft
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Re: Reliable ETF Bid/Ask spread information

Post by livesoft »

I am only interested in the spread when I place an order. Why not just look at the bid/ask spread for VTI and the Schwab product simultaneously when the market is open? I did that when considering IXUS and VXUS. Based on my observations, I would never purchase IXUS.

That said, why not use a Schwab mutual fund? For example, I used to own SWTSX and never paid a commission.
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Topic Author
Clivus1
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Re: Reliable ETF Bid/Ask spread information

Post by Clivus1 »

Thank you stultz. Fidelity shows an average bid/ask of 0.04% for SCHB, but only 0.01 for VTI. SCHB may improve with time, it is a relatively small ETF compared with VTI.

livesoft - I'm not sure when I'll be trading in the future, so I like to look at average bid/ask. I do use limit orders to minimize risk when selling, but I still think its worth reviewing historical spreads.

SWTSX is an alternative, but it only holds 2445 securities versus 3552 for VTI.

I'm probably going to stick with vanguard despite the $96 a year in trading costs. It has better diversification and lower total expenses compared with the Schwab products. The simplicity of only having a few products in my portfolio also has appeal for me.
livesoft
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Re: Reliable ETF Bid/Ask spread information

Post by livesoft »

I'd save the $96. You should buy SWTSX, then maybe once every 2 years or maybe every year if you really feel 3552 is better than 2445, then you can exchange into VTI.

if you have Schwab automatically reinvest the dividends from an ETF, do you know how they do that? I suspect that you will lose any advantages you think you have with VTI in the process. That is, Schwab will cost you more money than you think when they do the reinvesting for you. Or would you plan to manually reinvest the dividends from ETFs?
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grabiner
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Re: Reliable ETF Bid/Ask spread information

Post by grabiner »

livesoft wrote:I am only interested in the spread when I place an order. Why not just look at the bid/ask spread for VTI and the Schwab product simultaneously when the market is open?
The average spread is useful in planning your transactions. If an ETF usually trades at a 20-cent spread, and it is currently offering a $1 spread (I have seen this with VSS and other low-volume ETFs at the market open), you know that you can wait and probably save on the spread. If it usually trades at a $1 spread, you'll have to either be very patient or accept huge trading costs every time you buy and sell.

Similarly, you want more than one data point when comparing two ETFs. Many ETFs which normally trade at a high spread could briefly offer a one-cent spread. I also saw this with my first purchase of VSS, when I made an offer to match a market maker's ask of 51.75 but he raised the ask to 51.76 before my offer posted.
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livesoft
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Re: Reliable ETF Bid/Ask spread information

Post by livesoft »

Yes, I agree that one would like to know if the current bid/ask spread is out of line with expectations and that knowledge of the average bid/ask spread may help in that regard. That said, once one has made a trade or two at below the average spread or perhaps at 1 cent or less, then one sort of expects that kind of spread going forward even if the average spread is higher. With just a little bit of looking, I think one can see and understand the market conditions when spreads are low and when spreads are high.

Or just buy that SWTSX and not worry about it. :)

If one wishes to "practice" trading, it is easily possible if one has two tax-advantaged accounts at different brokers that give one free trades. I have sold VCSH to myself in this thread. I have also sold VWO to myself when I wanted VWO in a different account. In these instances, I was able to sell shares and nearly immediately purchase shares at a lower price. In other words, the bid/ask spread did not affect these trades to my detriment.
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Topic Author
Clivus1
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Re: Reliable ETF Bid/Ask spread information

Post by Clivus1 »

livesoft,

What are you getting at with the method that Schwab automatically reinvests dividends? I don't seem to pay commission on reinvestment. They do hold the money for 72 hours in a sweep account before depositing the shares.

You are tempting me with your suggestion of SWTSX. I'll investigate a bit more. It tracks DJ US total stock market index and VTI tracks CRSP US total market index. Depending on which period you pick they have more that 1% difference in performance.
livesoft
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Re: Reliable ETF Bid/Ask spread information

Post by livesoft »

See, e.g., http://www.bogleheads.org/forum/viewtop ... 0&t=123871

What price does Schwab give you for the reinvested ETF shares? How is the price determined? When is the price determined?

Is it really the market price or do you pay a higher price and even more than the spread whether it is a Schwab ETF or a Vanguard ETF or any other stock or ETF? How is the rounding-off done?

I guess what I am saying is that someone so concerned about the bid/ask spread should not be nonchalant about this other aspect of ETFs.
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