best practices when buying a large amount of stock

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wstalcup
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Joined: Mon Sep 18, 2017 1:40 pm

best practices when buying a large amount of stock

Post by wstalcup » Tue Sep 19, 2017 8:25 am

Good morning!
Let's say you wanted to buy $100,000 dollars worth of a particular stock at one time. Assuming a buy and hold scenario (not attempting day trading). Stock has a rather erratic trading volume history meaning a 100k "market" order could fill at current price...or you could drive up the price to an unacceptable purchase cost. You really have no idea. How is the best way to put in this order?
Let's say current Ask price is 21, but you are willing to pay up to 22 per share.
My guesses are:
If you were to do a "Buy-Limit-22-Fill or Kill":
1) Can sellers "see" you are willing to pay up to 22 per share instead of 21 and immediately increase their selling price?
2) Being a "Fill or Kill", would this purchase have to be from only 1 seller or could be multiple ones?
3) Also, since being a "Fill or Kill", this order may never happen, would your brokerage still charge you a fee?

If you were to do a "Buy-Limit-22-Immediate or Cancel":
1) If I understand this correctly, it could execute a partial order so theoretically you could end up buying 1 share and out another $5 or so from your broker's commission?

If you were do a "Buy-Limit-22-Day Only":
1) I believe this means "All or nothing" but giving the entire day to execute? so is it possible, the ASK price could drop to 19 but if there's never 100k worth of stock to buy at a given time, you may not ever be able to any?


Thanking in Advance!
Best investment advice: "Invest in your education" -Bill Gates

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Alexa9
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Re: best practices when buying a large amount of stock

Post by Alexa9 » Tue Sep 19, 2017 8:32 am

I wouldn't buy an individual stock to begin with other than maybe Berkshire. I would Dollar Cost Average or even wait for a dip in the stock. What stock is it? You could even set several limit orders well below the stock price if it is volatile. The nice thing about mutual funds is there is one fair price at the end of the day only.

Read this carefully before buying your stock:
https://www.bogleheads.org/wiki/Three-fund_portfolio

wstalcup
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Re: best practices when buying a large amount of stock

Post by wstalcup » Tue Sep 19, 2017 8:45 am

no stock in particular, just trying to understand the mechanics of what happens when placing large orders for stocks. Actually I was going to have follow-up questions about large orders of ETFs and mutual funds, but didn't want to confuse the subject for right now!
Best investment advice: "Invest in your education" -Bill Gates

Jack FFR1846
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Re: best practices when buying a large amount of stock

Post by Jack FFR1846 » Tue Sep 19, 2017 8:49 am

I've done this with mutual funds and with ETFs. With a MF, I put in the $ amount and click buy for the full amount. Last one I remember doing just a buy was for $260k. For an ETF, I always use a limit order very close to market "just in case" and would figure out number of shares $100k would buy, set the number and limit gtc and hit buy.

Unless you're buying some tiny equity, $100k isn't going to even be noticed.
Bogle: Smart Beta is stupid

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DaftInvestor
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Re: best practices when buying a large amount of stock

Post by DaftInvestor » Tue Sep 19, 2017 8:56 am

It depends. I don't think there is a single answer to your question.
Back when I used to trade individual stocks there were some stocks I would buy ONLY if they went down to a certain price within their fluctuations. For those - I would use limit orders. But then there were other stocks I would buy that I knew I would be holding for a period of time and I truly believed the stocks were great values for the given companies. I felt the fluctuations would be insignificant over time - and I knew I wanted those stocks. For those I would buy the full allocation at once (all in, no DCA).
Unless you are looking at micro-cap stocks - buying $100,000 worth isn't going to do much to impact the price - just look at the trading volume of the companies you are considering.

I no longer trade in individual stocks. (It wasn't because I was losing money or below market - it was simply because it was becoming a second full-time job for me and was starting to hurt my primary job).

laohan
Posts: 24
Joined: Sun Feb 28, 2016 3:13 am

Re: best practices when buying a large amount of stock

Post by laohan » Tue Sep 19, 2017 9:13 am

wstalcup wrote:
Tue Sep 19, 2017 8:25 am
Good morning!
Let's say you wanted to buy $100,000 dollars worth of a particular stock at one time. Assuming a buy and hold scenario (not attempting day trading). Stock has a rather erratic trading volume history meaning a 100k "market" order could fill at current price...or you could drive up the price to an unacceptable purchase cost. You really have no idea. How is the best way to put in this order?
Let's say current Ask price is 21, but you are willing to pay up to 22 per share.
My guesses are:
If you were to do a "Buy-Limit-22-Fill or Kill":
1) Can sellers "see" you are willing to pay up to 22 per share instead of 21 and immediately increase their selling price?
2) Being a "Fill or Kill", would this purchase have to be from only 1 seller or could be multiple ones?
3) Also, since being a "Fill or Kill", this order may never happen, would your brokerage still charge you a fee?

If you were to do a "Buy-Limit-22-Immediate or Cancel":
1) If I understand this correctly, it could execute a partial order so theoretically you could end up buying 1 share and out another $5 or so from your broker's commission?

If you were do a "Buy-Limit-22-Day Only":
1) I believe this means "All or nothing" but giving the entire day to execute? so is it possible, the ASK price could drop to 19 but if there's never 100k worth of stock to buy at a given time, you may not ever be able to any?


Thanking in Advance!
Don't use FOK. I am not sure if this a thought question or a real situation, but if it's real:

Split your order into pieces of, say, 10-20k each.
Trade slow, either over the course of a day, or the course of the week.
Watch the impact your orders make. If you get done easily, the price doesn't move, and you like the price, put another piece out.
Do not ask the market immediately for a price on all 100k if you think it's illiquid, unless the market is already showing you around that much. In that case, take it if you want.

You may pay an extra 100 dollars in commissions, but if your end result should be better.

wstalcup
Posts: 51
Joined: Mon Sep 18, 2017 1:40 pm

Re: best practices when buying a large amount of stock

Post by wstalcup » Tue Sep 19, 2017 10:44 am

ok, so a good target amount to buy at 1 time is around 20k for individual stocks, but for a large cap even up to 100k would be safe.

how about buying a large amount of a low volume ETF? For the most part, ETFs seems safe, when you buy them, they in turn just buy more of the stocks they are holding.. but let's say the ETF only has a total of 10 holdings and their total assets under management is only 1 million dollars... could buy 100k have some potentially serious consequences?
Best investment advice: "Invest in your education" -Bill Gates

livesoft
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Re: best practices when buying a large amount of stock

Post by livesoft » Tue Sep 19, 2017 11:27 am

Check out this thread:
viewtopic.php?t=165732

Since no one should be paying commissions, I might suggest submitting a set of smaller orders. You can experiment with smaller orders and see what happens and learn alot.
This signature message sponsored by sscritic: Learn to fish.

wstalcup
Posts: 51
Joined: Mon Sep 18, 2017 1:40 pm

Re: best practices when buying a large amount of stock

Post by wstalcup » Tue Sep 19, 2017 11:56 am

how would I not pay a commission? most of what I trade is vanguard ETFs so yah, I use Vanguard and don't pay commissions but for individual stocks I use Schwab which is only 5 bucks but I haven't seen a way around not paying that!
Best investment advice: "Invest in your education" -Bill Gates

AlohaJoe
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Location: Saigon, Vietnam

Re: best practices when buying a large amount of stock

Post by AlohaJoe » Tue Sep 19, 2017 9:38 pm

livesoft is WellsFargo's #1 online evangelist so they give him one million free trades a year ;)

(More seriously: WellsFargo used to have a program where you got 50 or 100 free trades a year. Some of us are still grandfathered into it.)
wstalcup wrote:
Tue Sep 19, 2017 10:44 am
ok, so a good target amount to buy at 1 time is around 20k for individual stocks, but for a large cap even up to 100k would be safe.
I have sold $100,000 of something that isn't even close to being a large cap and my order had no effect on the market. Even a tiny $6 billion company will have $18 million a day in volume (500,000 shares @ $30-40/share). $100,000 is one-half of one-percent of the daily volume.

The only time I've ever had any "problems" selling lots of $100,000 is when I set a limit order that is close to the market...and the market moves. Even something that is pretty stable -- let's say Microsoft which closed yesterday up a tiny 0.37% -- saw its price go from 75 to 75.7 during the day.

So imagine you log in at 11am. The price is at 75.49. You see that it opened at 75.28. So what do you use for your limit when you buy? Let's say you pick 75.44 -- cause you're a little greedy and hope to get it slightly under the current market but you figure "hey, it is still above where it opened today so someone is making money off me!". 75.44 is actually where MSFT closed for the day. But your order probably wouldn't have been filled for 2 hours until -- until around 1pm.

You're more likely to run into liquidity issues with ETFs. $6 billion market cap for a company isn't much but for an ETF it is pretty huge. There's only about 100 ETFs on the planet that size.

Sure, the huge ones have tons of volume. But something like, say, Guggenheim S&P SmallCap 600 PureValue -- which some on this board use -- only had a volume of around $400,000 yesterday. So a $100,000 is huge. Even something quite a bit bigger, say, Goldman Sachs ActiveBeta International Equity only had around $1.2 million yesterday. So a $100,000 order is still nearly 10% of the entire daily volume.

So I think that a $100,000 order when dealing with individual stocks is rarely a problem unless you're looking at microcaps. But $100,000 with ETFs...you need to pay more attention to the depth of the market.

venkman
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Re: best practices when buying a large amount of stock

Post by venkman » Tue Sep 19, 2017 11:06 pm

wstalcup wrote:
Tue Sep 19, 2017 10:44 am
how about buying a large amount of a low volume ETF? For the most part, ETFs seems safe, when you buy them, they in turn just buy more of the stocks they are holding.. but let's say the ETF only has a total of 10 holdings and their total assets under management is only 1 million dollars... could buy 100k have some potentially serious consequences?
This applies to open-ended mutual funds, but not to ETF's. ETF shares you buy are purchased from another investor who is selling them, and there is zero net effect on the size of the ETF itself.

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