Market vs Limit order

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Incendiary
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Market vs Limit order

Post by Incendiary » Sat Jul 15, 2017 9:25 am

When you buy stocks, such as Vanguard ETFs, do you place market orders or do you do limit orders?

Also, on a related note, can you set up a Roth IRA account at Vanguard to buy Vanguard mutual funds? I have accounts at TD, Schwab, and ETRADE, and I think I can only buy stocks through them.

abner kravitz
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Re: Market vs Limit order

Post by abner kravitz » Sat Jul 15, 2017 10:14 am

I always use limit orders with ETFs. There have been at least a couple of cases of unnatural violent volatility over the past few years, and I don't want to get caught in that. For the amounts I invest at any one time it's probably overkill, but they don't cost anything.

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Re: Market vs Limit order

Post by sport » Sat Jul 15, 2017 10:42 am

Incendiary wrote:When you buy stocks, such as Vanguard ETFs, do you place market orders or do you do limit orders?

Also, on a related note, can you set up a Roth IRA account at Vanguard to buy Vanguard mutual funds? I have accounts at TD, Schwab, and ETRADE, and I think I can only buy stocks through them.
Yes, you can have an account at Vanguard where you can buy their mutual funds and/or ETFs with no fees. If you buy the mutual funds, you do not need to be concerned about market orders, limit orders, or spreads. You just place your order and it gets executed at the end of the business day, at the actual share value.

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Re: Market vs Limit order

Post by jbolden1517 » Sat Jul 15, 2017 10:44 am

Unless the bid-ask spreads are very tight at the time I place an order it is always a limit order. If the ETF has been volatile I try for a limit order slightly above the bottom of the short term range. Mostly I skim 1% or so on the buy doing that. If the ETF isn't volatile I usually go slightly above the bid. If the spread is very tight I just do the market order and leave the $.02 / share on the table.

ValueInvestor99
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Re: Market vs Limit order

Post by ValueInvestor99 » Sat Jul 15, 2017 11:54 am

I seldom use limit orders for stock unless there is a spread.
Selling covered calls, I always use limit orders starting near the ask and lowering the limit if I don't get a sale.

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Re: Market vs Limit order

Post by Eric76 » Sat Jul 15, 2017 12:18 pm

Unless I'm buying relatively illiquid stocks and/or stocks with wide bid/ask spreads, I'll buy/sell at market price.

stinkycat
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Re: Market vs Limit order

Post by stinkycat » Sat Jul 15, 2017 12:24 pm

I used to be rather obsessive about placing limit orders. Until I realized that most of my orders are for very liquid securities, like VTI and I typically buy around 5 shares at a time. I just started using market orders and was done with it.

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Re: Market vs Limit order

Post by triceratop » Sat Jul 15, 2017 2:08 pm

I tend to use marketable limit orders for everything, simply for price protection.

Sometimes if the market is trending downward in a particular asset class I put my limit orders well below the bid but I don't think I am really saving much of anything by this.

For some ETFs that I buy, like VGIT or VSS, or others I am interested in buying in the future, like IJS or VIOV, a limit order is more important than on a liquid security like VTI, VXUS, or BND.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Market vs Limit order

Post by AlohaJoe » Sat Jul 15, 2017 2:16 pm

sport wrote:You just place your order and it gets executed at the end of the business day, at the actual share value.
This isn't true for anything that is international. Since obviously their markets don't close at 5pm Eastern Standard.

For a homework assignment: So how does Vanguard determine the price of a mutual fund when all those foreign markets are still open?

DetroitRick
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Re: Market vs Limit order

Post by DetroitRick » Sat Jul 15, 2017 2:22 pm

I've been exclusively using limit orders (stocks and ETF's) for the past few years. 99.99% of the time it makes little difference. It's the other .01% of the time where I might care (think flash crashes). Since it has yet to ever hamper my execution (which depends on WHAT you are buying or selling of course), I use it for that slight margin of safety against radically sudden movements. Plus, I'll often use it as a convenience tool, where I want to sell/buy at a certain price but don't feel like hovering over software waiting.

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CABob
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Re: Market vs Limit order

Post by CABob » Sat Jul 15, 2017 2:32 pm

Incendiary wrote:When you buy stocks, such as Vanguard ETFs, do you place market orders or do you do limit orders?
I only buy ETF and stocks while the market is open and am buying widely traded investments so I use market orders so I have not been hurt doing so.

Also, on a related note, can you set up a Roth IRA account at Vanguard to buy Vanguard mutual funds? I have accounts at TD, Schwab, and ETRADE, and I think I can only buy stocks through them.
Yes, you can mutual funds through a Vanguard Roth IRA. I believe you can buy mutual funds through all of the brokers you mentioned.
There may be a transaction fee that might make it undesirable.
Bob

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triceratop
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Re: Market vs Limit order

Post by triceratop » Sat Jul 15, 2017 2:41 pm

AlohaJoe wrote:
sport wrote:You just place your order and it gets executed at the end of the business day, at the actual share value.
This isn't true for anything that is international. Since obviously their markets don't close at 5pm Eastern Standard.

For a homework assignment: So how does Vanguard determine the price of a mutual fund when all those foreign markets are still open?
It doesn't. Mutual funds are priced daily at a time when foreign markets are closed. But I think I know what you meant ;)
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Market vs Limit order

Post by TropikThunder » Sat Jul 15, 2017 5:27 pm

triceratop wrote:
AlohaJoe wrote:
sport wrote:You just place your order and it gets executed at the end of the business day, at the actual share value.
This isn't true for anything that is international. Since obviously their markets don't close at 5pm Eastern Standard.

For a homework assignment: So how does Vanguard determine the price of a mutual fund when all those foreign markets are still open?
It doesn't. Mutual funds are priced daily at a time when foreign markets are closed. But I think I know what you meant ;)
That's because none of them aren't open at 5:00 pm Eastern in the first place when mutual funds update their NAV's. For example, all European markets close by 11:30 am Eastern (for example, regular market hours for the London Stock Exchange are 3:00 am - 11:30 am Eastern). Asian/Pacific markets don't re-open until 6:00 pm Eastern at the earliest, and that's only New Zealand (for example, regular market hours for the Tokyo Stock Exchange are 8:00 pm - 2:00 am Eastern, with an hour off for lunch at 10:30 pm :D ). I don't think any of them have enough after-hours trading to affect prices much. So when US funds update their NAV's at 5:00 pm Eastern, every market in the world is closed.
https://eresearch.fidelity.com/eresearc ... ours.jhtml
Last edited by TropikThunder on Fri Jul 21, 2017 12:11 am, edited 4 times in total.

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Re: Market vs Limit order

Post by triceratop » Sat Jul 15, 2017 5:31 pm

TropikThunder wrote:
triceratop wrote:
AlohaJoe wrote:
sport wrote:You just place your order and it gets executed at the end of the business day, at the actual share value.
This isn't true for anything that is international. Since obviously their markets don't close at 5pm Eastern Standard.

For a homework assignment: So how does Vanguard determine the price of a mutual fund when all those foreign markets are still open?
It doesn't. Mutual funds are priced daily at a time when foreign markets are closed. But I think I know what you meant ;)
Technically, there aren't any foreign markets open at 5:00 pm Eastern when mutual funds update their NAV's. For example, all European markets close by 11:30 am Eastern (regular market hours for the London Stock Exchange are 3:00 am - 11:30 am Eastern). Asian/Pacific markets re-open at 8:00 pm Eastern at the earliest (regular market hours for the Tokyo Stock Exchange are 8:00 pm - 2:00 am Eastern, with an hour off for lunch at 10:30 pm :D ). I don't think any of them have enough after-hours trading to affect prices much.
I think this is what I said?
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Market vs Limit order

Post by TropikThunder » Sat Jul 15, 2017 5:45 pm

triceratop wrote:
TropikThunder wrote:
triceratop wrote: It doesn't. Mutual funds are priced daily at a time when foreign markets are closed. But I think I know what you meant ;)
Technically, there aren't any foreign markets open at 5:00 pm Eastern when mutual funds update their NAV's. For example, all European markets close by 11:30 am Eastern (regular market hours for the London Stock Exchange are 3:00 am - 11:30 am Eastern). Asian/Pacific markets re-open at 8:00 pm Eastern at the earliest (regular market hours for the Tokyo Stock Exchange are 8:00 pm - 2:00 am Eastern, with an hour off for lunch at 10:30 pm :D ). I don't think any of them have enough after-hours trading to affect prices much.
I think this is what I said?
I wasn't disagreeing with you, I was providing more information to show that all the other markets are closed. Since you pointed that out first, I was giving you credit rather than pretending I didn't read your post too. I added some bolding above to indicate the comment I was responding to.

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Re: Market vs Limit order

Post by Incendiary » Sat Jul 15, 2017 5:50 pm

What is considered a wide bid ask spread? What is narrow?

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FIREchief
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Re: Market vs Limit order

Post by FIREchief » Sat Jul 15, 2017 7:21 pm

This is a good question.

According to Fido's website:

VTI Friday close = $126.23
bid = $125.25
ask = $126.50

Does this mean that the very last transaction had a sell price of $126.23?
If I had put in a market order for a single share at the last moment (after that last guy paid $126.23), would I have paid $126.50?
Would the trader have made $1.25 from my transaction?
Or, am I totally misunderstanding something. :P
Last edited by FIREchief on Sat Jul 15, 2017 7:40 pm, edited 1 time in total.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Market vs Limit order

Post by jbolden1517 » Sat Jul 15, 2017 7:31 pm

FIREchief wrote:This is a good question.

According to Fido's website:

VTI Friday close = $126.23
bid = $125.25
ask = $126.50

Does this mean that the very last transaction had a sell price of $126.23?
If I had put in a market order for a single share at the last moment (after that last guy paid $126.23), would I have paid $126.50?
Would the dealer/broker have made $1.25 from my transaction?
Or, am I totally misunderstanding something. :P
You are reading it correctly. And no your broker (in theory) wouldn't be making the $1.25 your counter party trading after hours would be though. Though if your broker is also making market in this fund he might be your counter party and yes they would make it off a pair of buy sells. If you traded after hours with those spreads (I don't think after hours is open now) you would be at $126.50 for a market buy. However, those are after hours bid ask spreads. You have to look during market hours and you'll see much tighter spreads on VTI usually a penny or two. On some other funds though you can see this see a 1% or more spread quite often.
Last edited by jbolden1517 on Sat Jul 15, 2017 7:33 pm, edited 1 time in total.

acanthurus
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Re: Market vs Limit order

Post by acanthurus » Sat Jul 15, 2017 7:32 pm

FIREchief wrote:This is a good question.

According to Fido's website:

VTI Friday close = $126.23
bid = $125.25
ask = $126.50

Does this mean that the very last transaction had a sell price of $126.23?
If I had put in a market order for a single share at the last moment (after that last guy paid $126.23), would I have paid $126.50?
Would the dealer/broker have made $1.25 from my transaction?
Or, am I totally misunderstanding something. :P
You need to look at bid/ask during market hours. It'll be a lot closer than that. Here's the 30 day average bid/ask spread for Vanguard ETFs:

https://advisors.vanguard.com/VGApp/iip ... daskspread

It's usually 0.1% or less.

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Re: Market vs Limit order

Post by jbolden1517 » Sat Jul 15, 2017 7:37 pm

Incendiary wrote:What is considered a wide bid ask spread? What is narrow?
Up to a few cents is narrow, more than .6% is wide. In between is a judgement call.

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Re: Market vs Limit order

Post by FIREchief » Sat Jul 15, 2017 8:00 pm

Thanks for the explanations. I really don't understand the way that traders make money, but likely don't need to. Is there any meaningful risk in selling a highly-liquid ETF such as VTI mid-day with a simple market order?

For those who use limit orders when selling ETF shares, do you generally just choose a number around the current ask price?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Market vs Limit order

Post by grabiner » Sat Jul 15, 2017 10:21 pm

FIREchief wrote:Thanks for the explanations. I really don't understand the way that traders make money, but likely don't need to. Is there any meaningful risk in selling a highly-liquid ETF such as VTI mid-day with a simple market order?
The main risk of a market order is that the order you are trying to accept is no longer there, and you accept the next-best offer at a higher price. For something very liquid such as VTI, this isn't likely to be a problem; if the spread is 90.40-90.41 when you place your order, there are usually lots of shares at $90.41, and if the market moves before you place your order, there will be shares at $90.42.
For those who use limit orders when selling ETF shares, do you generally just choose a number around the current ask price?
When selling with a small spread, I place a marketable limit order. For example, if I see 90.40-90.43, I'll just place the order to sell at $90.40 and eat the three cents. Similarly, I would buy at 90.43.

When selling with a large spread, I tend to go into the middle of the spread; these orders sometimes get accepted immediately, and if not, they stay around and someone might match them. For example, if I sell 90.10-90.30, and I am selling 500 shares, I might place my order to sell at $90.20. If you want to buy 500 shares and see the 90.10-90.30 spread become 90.10-90.20 as my order is placed, you may accept my order; the two of us cut out the middleman and each saved $50 compared to using marketable limit orders.
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Re: Market vs Limit order

Post by Doc » Sun Jul 16, 2017 6:39 am

grabiner wrote:When selling with a small spread, I place a marketable limit order. For example, if I see 90.40-90.43, I'll just place the order to sell at $90.40 and eat the three cents. Similarly, I would buy at 90.43
I would do something similar except that I might move the sell order down by a penny to try to move to the top of the list or if my order was large compared to recent trades I might use a "fill or kill" order. If you don't have access to the order book David's advice is a good way to go.
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Re: Market vs Limit order

Post by jbolden1517 » Sun Jul 16, 2017 6:58 am

FIREchief wrote:Thanks for the explanations. I really don't understand the way that traders make money, but likely don't need to. Is there any meaningful risk in selling a highly-liquid ETF such as VTI mid-day with a simple market order?

For those who use limit orders when selling ETF shares, do you generally just choose a number around the current ask price?
When I use a limit order because of a large spread I go slightly above the bid to buy and slightly below the ask to sell. I don't always get filled but when I do I shave an extra 1% or so. When I use a limit order for protection before the market opens i'd go slightly above the closing ask for a buy and slightly below the closing bid for a sell.

By traders do you mean the people making market or the ones placing limit orders and rapidly trading in and out? The people making market at say 90.31 bid 90.32 ask are moving tons of shares all day long making a penny on each. The most common way the frequent traders are making money right now is by selling theta.

In a perfect world:
Call at $X - put at $X + $X in cash = stock price
If that's not true there is money to be made at low risk by either buying or selling as appropriate to balance this equation.

This BTW is what a lot of newer brokers aimed at millennials are teaching (OptionsHouse, Tradeking, Tastytrade...) how to make money from theta yields which can be quite high. Essentially the next generation of active traders are learning to be be a sort of bond investors in extremely high yield high volatility bonds. Its had the funny effect of creating a whole generation of active traders who are also hardcore value investors very focused on fundamentals like dividend yield. :happy

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Re: Market vs Limit order

Post by Pajamas » Sun Jul 16, 2017 7:45 am

I always use limit orders. If you don't want to take a chance on it not being executed immediately or perhaps not at all, set the price of the limit order a little higher than the ask so that it effectively functions as a market order but still gives you protection against the market moving quickly or something else going wrong.

All it would take to convert you to placing limit orders is one expensive lesson with a market order gone wrong. There is no advantage in paying for the lesson vs. getting it for free. :beer

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Re: Market vs Limit order

Post by Johnnie » Sun Jul 16, 2017 8:52 am

I started using limit orders after the flash crash.

Of course my only relevant transactions anymore are annual rebalancing of the two etfs in my Merriman slice 'n' dice.
"I know nothing."

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Re: Market vs Limit order

Post by FIREchief » Sun Jul 16, 2017 2:25 pm

jbolden1517 wrote:
FIREchief wrote:Thanks for the explanations. I really don't understand the way that traders make money, but likely don't need to. Is there any meaningful risk in selling a highly-liquid ETF such as VTI mid-day with a simple market order?
By traders do you mean the people making market or the ones placing limit orders and rapidly trading in and out? The people making market at say 90.31 bid 90.32 ask are moving tons of shares all day long making a penny on each. The most common way the frequent traders are making money right now is by selling theta.
I'm going to be honest here. I'm not sure I even fully understand the distinctions between "people making market" and "ones placing limit orders and rapidly trading in and out." Fortunately, the only asset I have that will ever need to use this process is a number of shares of VTI. If I understand correctly, the spread of VTI is typically extremely narrow and the shares highly liquid; so either selling with limit orders at the current bid price, or simply using market orders, should work just fine.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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FIREchief
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Re: Market vs Limit order

Post by FIREchief » Sun Jul 16, 2017 2:28 pm

Pajamas wrote:I always use limit orders. If you don't want to take a chance on it not being executed immediately or perhaps not at all, set the price of the limit order a little higher than the ask so that it effectively functions as a market order but still gives you protection against the market moving quickly or something else going wrong.
Assuming you are talking about selling, don't you mean "a little lower than the ask?"
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Re: Market vs Limit order

Post by Thesaints » Sun Jul 16, 2017 2:40 pm

FIREchief wrote:Thanks for the explanations. I really don't understand the way that traders make money, but likely don't need to. Is there any meaningful risk in selling a highly-liquid ETF such as VTI mid-day with a simple market order?
Yep. "Flash crash", "fat finger", etc.; look them up. In other words, never use market orders. There is nothing to gain compared to limit orders, and you may be exposed to very substantial losses.
If you want to have guaranteed execution, check the book and add a few cents to your ask or bid. This is one of those very few cases where a retail investors does have an advantage over block traders.

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Re: Market vs Limit order

Post by FIREchief » Sun Jul 16, 2017 2:59 pm

Thesaints wrote:
FIREchief wrote:Thanks for the explanations. I really don't understand the way that traders make money, but likely don't need to. Is there any meaningful risk in selling a highly-liquid ETF such as VTI mid-day with a simple market order?
Yep. "Flash crash", "fat finger", etc.; look them up. In other words, never use market orders. There is nothing to gain compared to limit orders, and you may be exposed to very substantial losses.
If you want to have guaranteed execution, check the book and add a few cents to your ask or bid. This is one of those very few cases where a retail investors does have an advantage over block traders.
Did you mean to say "subtract a few cents from your ask or add a few cents to your bid?" Or, am I totally missing something.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Market vs Limit order

Post by Thesaints » Sun Jul 16, 2017 3:10 pm

FIREchief wrote:
Thesaints wrote:
FIREchief wrote:Thanks for the explanations. I really don't understand the way that traders make money, but likely don't need to. Is there any meaningful risk in selling a highly-liquid ETF such as VTI mid-day with a simple market order?
Yep. "Flash crash", "fat finger", etc.; look them up. In other words, never use market orders. There is nothing to gain compared to limit orders, and you may be exposed to very substantial losses.
If you want to have guaranteed execution, check the book and add a few cents to your ask or bid. This is one of those very few cases where a retail investors does have an advantage over block traders.
Did you mean to say "subtract a few cents from your ask or add a few cents to your bid?" Or, am I totally missing something.
I mean change your ask/bid by a few cents to match a deeper level on the book.

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Re: Market vs Limit order

Post by triceratop » Sun Jul 16, 2017 3:17 pm

jbolden1517 wrote:
FIREchief wrote:This is a good question.

According to Fido's website:

VTI Friday close = $126.23
bid = $125.25
ask = $126.50

Does this mean that the very last transaction had a sell price of $126.23?
If I had put in a market order for a single share at the last moment (after that last guy paid $126.23), would I have paid $126.50?
Would the dealer/broker have made $1.25 from my transaction?
Or, am I totally misunderstanding something. :P
You are reading it correctly. And no your broker (in theory) wouldn't be making the $1.25 your counter party trading after hours would be though. Though if your broker is also making market in this fund he might be your counter party and yes they would make it off a pair of buy sells. If you traded after hours with those spreads (I don't think after hours is open now) you would be at $126.50 for a market buy. However, those are after hours bid ask spreads. You have to look during market hours and you'll see much tighter spreads on VTI usually a penny or two. On some other funds though you can see this see a 1% or more spread quite often.
Just to be clear, the close of $126.23 was the result of the closing auction, and the bid/ask numbers you see following that are after-hours trading. They are not the bid/ask spread for the closing auction (well, there isn't one there). Anyway, it's not like you eat a $1.25 spread to buy/sell at the close.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Market vs Limit order

Post by *3!4!/5! » Sun Jul 16, 2017 3:18 pm

AlohaJoe wrote:
sport wrote:You just place your order and it gets executed at the end of the business day, at the actual share value.
This isn't true for anything that is international. Since obviously their markets don't close at 5pm Eastern Standard.

For a homework assignment: So how does Vanguard determine the price of a mutual fund when all those foreign markets are still open?
For reference, here's a relevant thread
Foreign ETF Trading - Best Practice
viewtopic.php?f=10&t=182982

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Re: Market vs Limit order

Post by FIREchief » Sun Jul 16, 2017 3:34 pm

triceratop wrote:
Just to be clear, the close of $126.23 was the result of the closing auction, and the bid/ask numbers you see following that are after-hours trading. They are not the bid/ask spread for the closing auction (well, there isn't one there). Anyway, it's not like you eat a $1.25 spread to buy/sell at the close.
Got it. I have yet to sell any ETF shares, but I now understand the basics. As I mentioned a few posts up, with VTI being my only holding, it sounds pretty straightforward.

For those of us getting a bit older, I think it is wise to help spouses/adult children/etc. who might be helping us with our finances know about things like "don't enter sell orders for any of these ETF shares when the market is closed." People who only hold mutual funds shares never confront this, as on-line order generation is a 24/7 thing.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Market vs Limit order

Post by FIREchief » Sun Jul 16, 2017 3:36 pm

Thesaints wrote:
FIREchief wrote:
Thesaints wrote:
FIREchief wrote:Thanks for the explanations. I really don't understand the way that traders make money, but likely don't need to. Is there any meaningful risk in selling a highly-liquid ETF such as VTI mid-day with a simple market order?
Yep. "Flash crash", "fat finger", etc.; look them up. In other words, never use market orders. There is nothing to gain compared to limit orders, and you may be exposed to very substantial losses.
If you want to have guaranteed execution, check the book and add a few cents to your ask or bid. This is one of those very few cases where a retail investors does have an advantage over block traders.
Did you mean to say "subtract a few cents from your ask or add a few cents to your bid?" Or, am I totally missing something.
I mean change your ask/bid by a few cents to match a deeper level on the book.
Yes, that is what I assumed you meant. For those of us just coming up to speed, it is good to be clear. :beer
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Market vs Limit order

Post by jbolden1517 » Sun Jul 16, 2017 3:44 pm

FIREchief wrote:
triceratop wrote:
Just to be clear, the close of $126.23 was the result of the closing auction, and the bid/ask numbers you see following that are after-hours trading. They are not the bid/ask spread for the closing auction (well, there isn't one there). Anyway, it's not like you eat a $1.25 spread to buy/sell at the close.
Got it. I have yet to sell any ETF shares, but I now understand the basics. As I mentioned a few posts up, with VTI being my only holding, it sounds pretty straightforward.

For those of us getting a bit older, I think it is wise to help spouses/adult children/etc. who might be helping us with our finances know about things like "don't enter sell orders for any of these ETF shares when the market is closed." People who only hold mutual funds shares never confront this, as on-line order generation is a 24/7 thing.
Unless your spouse or whatever goes for extended hours trading your broker wouldn't execute until the market reopens. The default is during market hours only. So really tell them to never trade during extended hours unless they want to profit from high spreads which in particular requires knowing what that means :D

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Re: Market vs Limit order

Post by FIREchief » Sun Jul 16, 2017 3:52 pm

jbolden1517 wrote:
FIREchief wrote:
triceratop wrote:
Just to be clear, the close of $126.23 was the result of the closing auction, and the bid/ask numbers you see following that are after-hours trading. They are not the bid/ask spread for the closing auction (well, there isn't one there). Anyway, it's not like you eat a $1.25 spread to buy/sell at the close.
Got it. I have yet to sell any ETF shares, but I now understand the basics. As I mentioned a few posts up, with VTI being my only holding, it sounds pretty straightforward.

For those of us getting a bit older, I think it is wise to help spouses/adult children/etc. who might be helping us with our finances know about things like "don't enter sell orders for any of these ETF shares when the market is closed." People who only hold mutual funds shares never confront this, as on-line order generation is a 24/7 thing.
Unless your spouse or whatever goes for extended hours trading your broker wouldn't execute until the market reopens. The default is during market hours only. So really tell them to never trade during extended hours unless they want to profit from high spreads which in particular requires knowing what that means :D
Exactly. Thanks. I just told them (yesterday) to only sell VTI shares when the market is open. Since this might be decades from now, I also wrote it down. 8-)
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Re: Market vs Limit order

Post by triceratop » Sun Jul 16, 2017 3:55 pm

*3!4!/5! wrote:
AlohaJoe wrote:
sport wrote:You just place your order and it gets executed at the end of the business day, at the actual share value.
This isn't true for anything that is international. Since obviously their markets don't close at 5pm Eastern Standard.

For a homework assignment: So how does Vanguard determine the price of a mutual fund when all those foreign markets are still open?
For reference, here's a relevant thread
Foreign ETF Trading - Best Practice
viewtopic.php?f=10&t=182982
Thanks, hadn't seen that one. Here's another interesting thread.

Zweig: The Expensive Ingredient of Cheap ETFs [Price vs. NAV]
viewtopic.php?t=216617

TL;DR: It is possible to accurately price foreign ETFs; indeed it must be what market makers are willing to do
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Re: Market vs Limit order

Post by Pajamas » Mon Jul 17, 2017 12:19 pm

FIREchief wrote:
Pajamas wrote:I always use limit orders. If you don't want to take a chance on it not being executed immediately or perhaps not at all, set the price of the limit order a little higher than the ask so that it effectively functions as a market order but still gives you protection against the market moving quickly or something else going wrong.
Assuming you are talking about selling, don't you mean "a little lower than the ask?"
OP asked about buying specifically so that is what I was referring to.

You would be correct about setting the limit price lower when selling, but it would be lower than the bid. (Which would also be lower than the ask, of course, unless the bids were crossed.)

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Re: Market vs Limit order

Post by FIREchief » Mon Jul 17, 2017 4:03 pm

Pajamas wrote:
FIREchief wrote:
Pajamas wrote:I always use limit orders. If you don't want to take a chance on it not being executed immediately or perhaps not at all, set the price of the limit order a little higher than the ask so that it effectively functions as a market order but still gives you protection against the market moving quickly or something else going wrong.
Assuming you are talking about selling, don't you mean "a little lower than the ask?"
OP asked about buying specifically so that is what I was referring to.

You would be correct about setting the limit price lower when selling, but it would be lower than the bid. (Which would also be lower than the ask, of course, unless the bids were crossed.)
This makes no sense to me. If I was selling, I would want to offer a better price than the other sellers. The best offer from any seller is the "ask" price, so wouldn't I just offer slightly lower than the current "ask" to now be offering the best price?
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Re: Market vs Limit order

Post by Pajamas » Mon Jul 17, 2017 4:22 pm

You're not guaranteed a sell just because you offer the best price. You're not even guaranteed a sell if you offer lower than the highest bid. I typically use all or none limit orders. If I am selling 1,000 shares and set a limit price just below the highest bid which is for 100 shares, the order won't be filled unless there are enough bidders at or above my limit price.

Say the bid is $100 and the ask is $101. If I want to sell but don't want to risk something going wrong and my stock being sold at $80 a share, then I might set a limit of $99. When the order is filled they will fill it at the best prices available but won't go below $99. Otherwise, on a thinly traded stock, selling 1,000 shares at market could result in 100 shares being sold at $100, 150 shares at $99.50, 300 shares at $99, 214 shares at $98.75, etc. Or 100 shares might be filled at $100 and the rest at $92 because bidders dropped out seeing a large sell order or because a flood of sell orders hit the market on some rumor or news.

Limit orders are especially important in times of volatility, such as putting in a order to be executed at market open in a stock with big news announced overnight, good or bad.

You could place thousands of market orders every day for your whole life and never have a problem, but it would only take one expensive problem to convert you to placing limit orders. I think of it as insurance, as putting a bottom limit on the selling price or an upper limit on the buying price.

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Re: Market vs Limit order

Post by FIREchief » Mon Jul 17, 2017 9:32 pm

Pajamas wrote:
You could place thousands of market orders every day for your whole life and never have a problem, but it would only take one expensive problem to convert you to placing limit orders. I think of it as insurance, as putting a bottom limit on the selling price or an upper limit on the buying price.
Yes. I get that. Thanks for further explaining your post. As I mentioned, the only asset I hold that will ever need to be sold through the market are shares of VTI, so most of this discussion is just academic for me. I have bought TIPS on the secondary market and, IIRC, those required limit orders (at least at Fido).
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Re: Market vs Limit order

Post by triceratop » Thu Jul 20, 2017 1:38 am

FIREchief wrote:
Pajamas wrote:
You could place thousands of market orders every day for your whole life and never have a problem, but it would only take one expensive problem to convert you to placing limit orders. I think of it as insurance, as putting a bottom limit on the selling price or an upper limit on the buying price.
Yes. I get that. Thanks for further explaining your post. As I mentioned, the only asset I hold that will ever need to be sold through the market are shares of VTI, so most of this discussion is just academic for me. I have bought TIPS on the secondary market and, IIRC, those required limit orders (at least at Fido).
I still would use limit orders on VTI, and do.
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Re: Market vs Limit order

Post by inbox788 » Thu Jul 20, 2017 4:54 am

IMO, one should not be trading instruments where it matters. That said, I always use limit orders. You never know when the next flash crash is going to be. For the volumes individual investors are adding, a penny or two is most likely trivial. Even nickle or dime isn't going to matter in 20 years. The only time you might be concerned is if you're transferring large sums from one account to another or doing large rebalancing or TLH. In those cases, try to trade stocks/ETFs in the middle of the day when the market is most liquid, stable and consider breaking up the trade into smaller chuncks to minimize and average out the variability. For mutual funds, or if you must place orders in advance, choose a boring week.
triceratop wrote:I tend to use marketable limit orders for everything, simply for price protection.
Marketable limit orders are fine. You care more about execution than price improvement. FWIW, I have one dumb account where that isn't allowed. The limit order must be above the market price, but for the most part, that's not been a problem. Most of the time, I get execution above the current price, but once in a while it goes down and I have to re-enter a slightly lower price. Any difference is tiny in comparison to the overall amounts being traded.

We're not usually talking about volatile stocks here. I set up a tracking spreadsheet and put my bonds in it. Watching them move or more like not move is making me think of just forgetting about tracking it at all.

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Re: Market vs Limit order

Post by Pajamas » Thu Jul 20, 2017 11:48 am

This discussion brings up another point: A good use of limit orders is to place a standing limit order for a security that trades on low volume such as preferred stock that you want to buy at the low price you want to pay, usually significantly below market. Every once in a while you get lucky and there will be a big sell order placed at market or there is a flash crash and your order will be filled. It's like a surprise gift to be notified of an execution on one of those standing orders.

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Re: Market vs Limit order

Post by FIREchief » Thu Jul 20, 2017 4:06 pm

This is starting to make more sense. Thanks.
inbox788 wrote:
Marketable limit orders are fine. You care more about execution than price improvement. FWIW, I have one dumb account where that isn't allowed. The limit order must be above the market price, but for the most part, that's not been a problem. Most of the time, I get execution above the current price, but once in a while it goes down and I have to re-enter a slightly lower price. Any difference is tiny in comparison to the overall amounts being traded.
This one confused me. Is your description above related to you buying or selling?

Edit: upon further review, it appears that you are selling. Please let me know if I am mistaken. Your use of the term "price" is what confused me.
Last edited by FIREchief on Thu Jul 20, 2017 4:40 pm, edited 1 time in total.
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Re: Market vs Limit order

Post by Thesaints » Thu Jul 20, 2017 4:14 pm

Pajamas wrote:This discussion brings up another point: A good use of limit orders is to place a standing limit order for a security that trades on low volume such as preferred stock that you want to buy at the low price you want to pay, usually significantly below market. Every once in a while you get lucky and there will be a big sell order placed at market or there is a flash crash and your order will be filled. It's like a surprise gift to be notified of an execution on one of those standing orders.
Yes, you can catch a fluctuation, or you can be stuck with worthless stock after an event-driven repricing. Traders (I mean the real ones, not the amateur variety) are paid to pay full, undivided, attention to the market. The rest of us have a day job and lots of other cares.

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Re: Market vs Limit order

Post by grabiner » Thu Jul 20, 2017 7:03 pm

Pajamas wrote:This discussion brings up another point: A good use of limit orders is to place a standing limit order for a security that trades on low volume such as preferred stock that you want to buy at the low price you want to pay, usually significantly below market. Every once in a while you get lucky and there will be a big sell order placed at market or there is a flash crash and your order will be filled. It's like a surprise gift to be notified of an execution on one of those standing orders.
The problem with this strategy is that the standing order may not be the price you want to pay later. Say you have an order to buy at $45 when the market price is $50. After a general market decline, the market price of your stock is now $46; do you still want an order to buy at $45? Probably not, as a bit of bad news can drop the price from $46 to $42, and traders will happily take the $3 profit from you. And even if this doesn't happen, a normal down day will cause your order to be at the market price, which will no longer be a bargain.
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Re: Market vs Limit order

Post by Pajamas » Fri Jul 21, 2017 12:00 am

No guts, no glory.

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Re: Market vs Limit order

Post by Phineas J. Whoopee » Fri Jul 21, 2017 6:20 pm

AlohaJoe wrote:
sport wrote:You just place your order and it gets executed at the end of the business day, at the actual share value.
This isn't true for anything that is international. Since obviously their markets don't close at 5pm Eastern Standard.

For a homework assignment: So how does Vanguard determine the price of a mutual fund when all those foreign markets are still open?
Fair-value pricing after they're already closed.

As an aside, all US stock exchanges close at 4:00 PM Eastern, standard or daylight saving as the case may be, except on a few days per year when it's a pre-announced 1:00. It usually takes a couple of hours after close for mutual fund net asset values to be published.

There have been cases when US stock exchanges were closed even though their published schedules said they'd be open.

PJW

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