SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by jalbert » Mon Sep 24, 2018 9:03 pm

The point being missed is that arbitragers will be generating new bids when insufficient market bids lead to the price of VIOV to start to fall to a discount relative to NAV because of a market imbalance. They may arbitrage against the underlying securities or against IJS or SLYV.

Do you really think the likes of traders at Goldman-Sachs will sit on their hands when there is free money on the table?
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Tue Sep 25, 2018 6:59 am

jalbert wrote:
Mon Sep 24, 2018 9:03 pm
The point being missed is that arbitragers will be generating new bids when insufficient market bids lead to the price of VIOV to start to fall to a discount relative to NAV because of a market imbalance. They may arbitrage against the underlying securities or against IJS or SLYV.

Do you really think the likes of traders at Goldman-Sachs will sit on their hands when there is free money on the table?
How big an NAV imbalance do you think they would have to get on 10,000 shares a day to make it worth their effort?

Even if there is no unbalance at the top of the bid sheet it matters little if you or I want to trade 1000 shares. The data we have is that 400 was not possible to move with a limit order at the then current bid.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Tue Sep 25, 2018 7:02 am

Doc wrote:
Tue Sep 25, 2018 6:59 am
jalbert wrote:
Mon Sep 24, 2018 9:03 pm
The point being missed is that arbitragers will be generating new bids when insufficient market bids lead to the price of VIOV to start to fall to a discount relative to NAV because of a market imbalance. They may arbitrage against the underlying securities or against IJS or SLYV.

Do you really think the likes of traders at Goldman-Sachs will sit on their hands when there is free money on the table?
How big an NAV imbalance do you think they would have to get on 10,000 shares to make it worth their effort?

Even if there is no unbalance at the top of the bid sheet it matters little if you or I want to trade a 1000 shares. The data we have is that 400 was not possible to move with a limit order at the then current bid.
Again, that is NOT the case. The limit order that didn’t execute was INSIDE the spread, not at the prevailing bid.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Tue Sep 25, 2018 7:07 am

vineviz wrote:
Tue Sep 25, 2018 7:02 am
Again, that is NOT the case. The limit order that didn’t execute was INSIDE the spread, not at the prevailing bid.
The first 300 executed. Am I wrong that implies that the order was at the bid?
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by jalbert » Wed Sep 26, 2018 10:21 am

Doc wrote:
Tue Sep 25, 2018 6:59 am
jalbert wrote:
Mon Sep 24, 2018 9:03 pm
The point being missed is that arbitragers will be generating new bids when insufficient market bids lead to the price of VIOV to start to fall to a discount relative to NAV because of a market imbalance. They may arbitrage against the underlying securities or against IJS or SLYV.

Do you really think the likes of traders at Goldman-Sachs will sit on their hands when there is free money on the table?
How big an NAV imbalance do you think they would have to get on 10,000 shares a day to make it worth their effort?

Even if there is no unbalance at the top of the bid sheet it matters little if you or I want to trade 1000 shares. The data we have is that 400 was not possible to move with a limit order at the then current bid.
Then why do market makers even bother buying 1000 shares of IJS? The thin bid-ask spread is not going to make them much money on that trade.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by triceratop » Wed Sep 26, 2018 10:26 am

Doc wrote:
Tue Sep 25, 2018 7:07 am
vineviz wrote:
Tue Sep 25, 2018 7:02 am
Again, that is NOT the case. The limit order that didn’t execute was INSIDE the spread, not at the prevailing bid.
The first 300 executed. Am I wrong that implies that the order was at the bid?
Yes.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Wed Sep 26, 2018 12:13 pm

jalbert wrote:
Wed Sep 26, 2018 10:21 am
Doc wrote:
Tue Sep 25, 2018 6:59 am
jalbert wrote:
Mon Sep 24, 2018 9:03 pm
The point being missed is that arbitragers will be generating new bids when insufficient market bids lead to the price of VIOV to start to fall to a discount relative to NAV because of a market imbalance. They may arbitrage against the underlying securities or against IJS or SLYV.

Do you really think the likes of traders at Goldman-Sachs will sit on their hands when there is free money on the table?
How big an NAV imbalance do you think they would have to get on 10,000 shares a day to make it worth their effort?

Even if there is no unbalance at the top of the bid sheet it matters little if you or I want to trade 1000 shares. The data we have is that 400 was not possible to move with a limit order at the then current bid.
Then why do market makers even bother buying 1000 shares of IJS? The thin bid-ask spread is not going to make them much money on that trade.
Because with IJS they can make that trade 175 time a day not only 10 with VIOV. But I wasn't the one that brought up money big traders.

And its not the bid/ask spread that is the issue its the spread from the NAV that you were addressing.

"... start to fall to a discount relative to NAV because of a market imbalance"

But whichever the imbalance is even if it is small if you can execute many many times in a day you might be able to make enough to justify the agro. And you are much more likely to be able to execute the trade if the daily volume is much higher.

Look at a chart of VIOV and ^VIOV-IV on Yahoo finance over a short time period like a day and with a 1 minute time period. Most of the trades are very near the NAV so someone is paying attention. But the volumes are less than 1000 shares. This doesn't seem like a big arbitrager to me.

If you are buying small value ten shares at a time VIOV may be great for you. But what happens when you have acquired a few thousand shares and you want to sell them? I guess you could put in a limit order at the NAV and go play golf for the rest of the afternoon but I don't want to do that.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Wed Sep 26, 2018 12:19 pm

triceratop wrote:
Wed Sep 26, 2018 10:26 am
Doc wrote:
Tue Sep 25, 2018 7:07 am
vineviz wrote:
Tue Sep 25, 2018 7:02 am
Again, that is NOT the case. The limit order that didn’t execute was INSIDE the spread, not at the prevailing bid.
The first 300 executed. Am I wrong that implies that the order was at the bid?
Yes.
Near the bid? :D

I thought the description was that the first 300 executed "immediately".

(I don't remember if the example was a buy or sell order so if I replaced "bid" with "ask" I goofed.)
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Wed Sep 26, 2018 12:27 pm

Doc wrote:
Wed Sep 26, 2018 12:13 pm
If you are buying small value ten shares at a time VIOV may be great for you. But what happens when you have acquired a few thousand shares and you want to sell them?
I think we've answered this question about a hundred times: you enter the sell order and watch it execute at the prevailing bid price.

This will happen with 100 shares or 10,000 shares, any time you want.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by chisey » Wed Sep 26, 2018 12:35 pm

Doc wrote:
Wed Sep 26, 2018 12:19 pm

Near the bid? :D

I thought the description was that the first 300 executed "immediately".

(I don't remember if the example was a buy or sell order so if I replaced "bid" with "ask" I goofed.)
You goofed. ;) It was a buy, and in all four cases I set the limit a penny or two below ask. The first three executed within seconds. The last took 45 minutes and I had reset the limit at least 4 times, and it finally executed at about 80 cents per share higher than the first three. To my best recollection, I had to set my limit above the ask to get execution on the 4th order (though it may have been at the ask-- I'm really not sure).

I'd have probably gotten execution at or just above ask if I'd put an order for all 400 shares at once and set the limit at or above the ask, and that would have cost a little less in the end. Lesson learned. Still, now that IJS is free to trade at Vanguard, I see no reason not to just use it and not have to worry about what happens with larger orders (or worry about using limit orders, for that matter).

Regardless, I appreciate this conversation on the mechanics-- there is much I don't know about how this works but some of it is getting clearer as you all hash this out.

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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Wed Sep 26, 2018 12:45 pm

vineviz wrote:
Wed Sep 26, 2018 12:27 pm
Doc wrote:
Wed Sep 26, 2018 12:13 pm
If you are buying small value ten shares at a time VIOV may be great for you. But what happens when you have acquired a few thousand shares and you want to sell them?
I think we've answered this question about a hundred times: you enter the sell order and watch it execute at the prevailing bid price.

This will happen with 100 shares or 10,000 shares, any time you want.
Yes if it's a market order. I was going on what chisey was doing which was a limit order. Actually four separate orders. My bad.

But there is no way I would put in a market order for 10,000 shares when the average daily volume is only 10,000 shares. And if someone is paying any kind of attention that market order probably will get filled at some price however low that might be.

Top part of the current market depth for VIOV:

Image

Chisey, thanks for the clarification.
Last edited by Doc on Wed Sep 26, 2018 12:53 pm, edited 1 time in total.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Wed Sep 26, 2018 12:49 pm

Doc wrote:
Wed Sep 26, 2018 12:45 pm
But there is no way I would put in a market order for 10,000 shares when the average daily volume is only 10,000 shares.
And no one will try to force you to.

All I'm trying to do is make it clear that there is no rational reason not to do so.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by chisey » Wed Sep 26, 2018 12:53 pm

vineviz wrote:
Wed Sep 26, 2018 12:49 pm
Doc wrote:
Wed Sep 26, 2018 12:45 pm
But there is no way I would put in a market order for 10,000 shares when the average daily volume is only 10,000 shares.
And no one will try to force you to.

All I'm trying to do is make it clear that there is no rational reason not to do so.
Just to clarify, are you saying one should never worry about placing a market order, of any size, for any index ETF with liquid underlying holdings because of the mechanics of ETF unit creation? Or am I missing some nuance?

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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Wed Sep 26, 2018 1:06 pm

chisey wrote:
Wed Sep 26, 2018 12:53 pm
vineviz wrote:
Wed Sep 26, 2018 12:49 pm
Doc wrote:
Wed Sep 26, 2018 12:45 pm
But there is no way I would put in a market order for 10,000 shares when the average daily volume is only 10,000 shares.
And no one will try to force you to.

All I'm trying to do is make it clear that there is no rational reason not to do so.
Just to clarify, are you saying one should never worry about placing a market order, of any size, for any index ETF with liquid underlying holdings because of the mechanics of ETF unit creation? Or am I missing some nuance?
That's what I'm saying. It's especially true for an ETF like VIOV where there are other index funds tracking the same index (IJS and SLYV), so that even tiny traders can keep the prices in balance.

Because ETF orders get entered with share counts instead of dollar amounts, I sometimes set a limit $0.01 above the prevailing ask to make sure I don't buy more shares than I can afford based on the available cash in my account but I'd do that no matter what the security is.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Wed Sep 26, 2018 1:15 pm

vineviz wrote:
Wed Sep 26, 2018 12:49 pm
Doc wrote:
Wed Sep 26, 2018 12:45 pm
But there is no way I would put in a market order for 10,000 shares when the average daily volume is only 10,000 shares.
And no one will try to force you to.

All I'm trying to do is make it clear that there is no rational reason not to do so.
Because you are going to be paying a very high price for those last few thousand shares.
vineviz wrote:
Wed Sep 26, 2018 1:06 pm
Because ETF orders get entered with share counts instead of dollar amounts, I sometimes set a limit $0.01 above the prevailing ask to make sure I don't buy more shares than I can afford based on the available cash in my account but I'd do that no matter what the security is.
So you are using a limit order not a market order. The outcome for a highly traded ETF like SPY will probably be the same but for VIOV not so much. For VIOV the first shares you buy will be at 144.68 and the last at 170.00 but even then you only have bought the whole 10,000.

Yes with high volume ETFs and good alternatives like the two ETFs with the same index the arbitrageurs will keep the price near the NAV if the volume is high enough to make it worth their effort. But for something like VIOV I doubt the big traders are even looking.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Wed Sep 26, 2018 1:19 pm

Doc wrote:
Wed Sep 26, 2018 1:15 pm
Because you are going to be paying a very high price for those last few thousand shares.
No. You won't.

I know that you believe this, and are scared of this, but it simply isn't true.
Doc wrote:
Wed Sep 26, 2018 1:15 pm
The outcome for a highly traded ETF like SPY will probably be the same but for VIOV not so much. For VIOV the first shares you buy will be at 144.68 and the last at 170.00 .
No. They won't.

I know that you believe this, and are scared of this, but it simply isn't true.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by chisey » Wed Sep 26, 2018 1:35 pm

vineviz wrote:
Wed Sep 26, 2018 1:19 pm
No. They won't.

I know that you believe this, and are scared of this, but it simply isn't true.
Does this mean that there are always APs at the ready to sell at the ask and buy at the bid for all ETFs, and they will intercede if a transaction well above ask or below bid attempts to execute? Regardless of transaction size? Otherwise It seems like buyers and sellers would usually be paired and Doc's situation could happen.

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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Wed Sep 26, 2018 1:56 pm

chisey wrote:
Wed Sep 26, 2018 1:35 pm
vineviz wrote:
Wed Sep 26, 2018 1:19 pm
No. They won't.

I know that you believe this, and are scared of this, but it simply isn't true.
Does this mean that there are always APs at the ready to sell at the ask and buy at the bid for all ETFs, and they will intercede if a transaction well above ask or below bid attempts to execute? Regardless of transaction size? Otherwise It seems like buyers and sellers would usually be paired and Doc's situation could happen.
I don't think "intercede" is exactly the right word, but for an index ETF like VIOV you can be very sure that there is someone there provide enough liquidity to ensure that the transaction price is within a percent of NAV. It might be the AP or it might be some guy with a laptop, but a market order of ANY size isn't going to move the price by 15-20% as Doc suggested.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Wed Sep 26, 2018 3:35 pm

With regard to a market order not being filled at a "reasonable" price.
vineviz wrote:
Wed Sep 26, 2018 1:19 pm
No. You won't.

I know that you believe this, and are scared of this, but it simply isn't true.
Market Order

What is a 'Market Order'
A market order is a request to buy or sell a security at the best-available price in the current market. It is widely considered the fastest and most reliable way to enter or exit a trade, and provides the most likely method of getting in or out of a trade quickly.

For many large-cap, liquid stocks, for instance, market orders fill nearly instantaneously.

The trade-off, however, is that market orders fill at a price dictated by the market, as opposed to limit or stop orders, which provide a trader more control. Using market orders can sometimes lead to unintended, and in some cases, significant costs.
Read more: Market Order https://www.investopedia.com/terms/m/ma ... z5SF2Qs9RJ

Your big traders do not have time to react. They probably don't even see the order until it executes. The market order executes at the "best-available" price in the current market. And in a case of a low volume security like we are discussing that "best available price" might cover a large range. At the time I grabbed the market depth screen shot earlier once you got beyond about 3000 or 4000 shares the ask price rose considerably from 144.68 to 147.88. That's hugh.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Wed Sep 26, 2018 4:03 pm

Doc wrote:
Wed Sep 26, 2018 3:35 pm
Your big traders do not have time to react. They probably don't even see the order until it executes. The market order executes at the "best-available" price in the current market. And in a case of a low volume security like we are discussing that "best available price" might cover a large range. At the time I grabbed the market depth screen shot earlier once you got beyond about 3000 or 4000 shares the ask price rose considerably from 144.68 to 147.88. That's hugh.
You're making assumptions that are contrary to facts which have demonstrated to you in this thread multiple time and that betray a fundamental misunderstanding of the way that the market for index ETFs work.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Wed Sep 26, 2018 4:36 pm

vineviz wrote:
Wed Sep 26, 2018 4:03 pm
Doc wrote:
Wed Sep 26, 2018 3:35 pm
Your big traders do not have time to react. They probably don't even see the order until it executes. The market order executes at the "best-available" price in the current market. And in a case of a low volume security like we are discussing that "best available price" might cover a large range. At the time I grabbed the market depth screen shot earlier once you got beyond about 3000 or 4000 shares the ask price rose considerably from 144.68 to 147.88. That's hugh.
You're making assumptions that are contrary to facts which have demonstrated to you in this thread multiple time and that betray a fundamental misunderstanding of the way that the market for index ETFs work.
It doesn't have anything to do with "the way that the market for ETFs work". I understand how the creation/redemption mechanism keeps the "trading price" of an ETF close to its NAV.

The problem here is a trading issue. If I place a market order to sell any security it fills starting at the best price and and then fills at the "next best" price because it is now the best price since the original best is now gone. This continues unto the order is filled or you run out of available "next bests". I think this market order never even shows in the market depth list on the Level 2 quotes. I don't see how it could show up because it has no price associated with it as far as I know. Unless somehow a new order jumps to the top while my order is executing my order continues to go down the list as it fills. This is all happening in a fraction of a second for market orders. I don't know if some new order can somehow jump in while this market order filling is executing. But certainly no human intervention can jump the que.

If my understanding of market order execution is incorrect please send me to a source where I can get re-educated.

VIOV has relatively long periods of time between trades. It would be interesting to see if the bid/ask NBBO bracket the NAV inbetween trades. That could perhaps provide an answer to the question.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Wed Sep 26, 2018 4:45 pm

Doc wrote:
Wed Sep 26, 2018 4:36 pm
If my understanding of market order execution is incorrect please send me to a source where I can get re-educated.
Virtually this whole thread has consisted of multiple people referring you to sources where you can "get re-educated", as you say.

How hard is it to accept that investment professionals (including not just those in this thread, but also the ones at Vanguard, BlackRock, JP Morgan, Hartford Funds, etc. that who have written materials that we've pointed you towards) just MIGHT be right on this?
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by jalbert » Wed Sep 26, 2018 9:18 pm

Because with IJS they can make that trade 175 time a day not only 10 with VIOV. But I wasn't the one that brought up money big traders.

And its not the bid/ask spread that is the issue its the spread from the NAV that you were addressing.
Market makers bringing buyers and sellers together for a security profit off the bid-ask spread. Arbitragers profit off the price drifting from NAV. No reason for market makers for SP600 SCV to limit themselves to 175 profitable trades if they can make 185 profitable trades.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by international001 » Thu Sep 27, 2018 5:41 am

I'm happy I reopen this (passionate) thread. I'm getting educated

But I still don't have it clear. If I try to sell 1000 shares of VIOV as a *market order*, what will be the spread between the cheapest and the most expensive share I get

Reading throughout the comments, it would seem that ETF arbitrage process may not be fast enough, so I may get a big spread. The workaround should be not doing 'market order'. Do I understand it right?

Anybody has a spare $100k to give it a try? I seems in BH there are lots of people whose wealth is only dwarf by their egos ;-)

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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Thu Sep 27, 2018 6:00 am

international001 wrote:
Thu Sep 27, 2018 5:41 am
I'm happy I reopen this (passionate) thread. I'm getting educated

But I still don't have it clear. If I try to sell 1000 shares of VIOV as a *market order*, what will be the spread between the cheapest and the most expensive share I get
Easy.

$0.00
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Thu Sep 27, 2018 8:25 am

international001 wrote:
Thu Sep 27, 2018 5:41 am
If I try to sell 1000 shares of VIOV as a *market order*, what will be the spread between the cheapest and the most expensive share I get
Shortly after you wrote this vineviz responded:

"Easy. $0.00"

And he was correct because it was premarket and there was only one bid and that was for only 500 shares.

Now while still in premarket there are about 5 or 6 bids totaling about 800 shares with a spread of some $25. But take heart there is something called an opening cross where all the bid/asks are matched and I don't know the details of how that works other than there is a matching of all the bids/asks at the opening.

Don't place market orders in the dark. :D
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Thu Sep 27, 2018 8:31 am

international001

Market opened: Spread on your 1000 share buy now only 5 bps. :D
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Thu Sep 27, 2018 10:33 am

Doc wrote:
Thu Sep 27, 2018 8:25 am
international001 wrote:
Thu Sep 27, 2018 5:41 am
If I try to sell 1000 shares of VIOV as a *market order*, what will be the spread between the cheapest and the most expensive share I get
Shortly after you wrote this vineviz responded:

"Easy. $0.00"

And he was correct because it was premarket and there was only one bid and that was for only 500 shares.
Sorry, Doc, but that is NOT why I was correct. If you enter a market sell order for 1,000 or 10,000 right now (while markets are open) the same thing will happen: all the shares will execute immediately at the bid price.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Thu Sep 27, 2018 12:35 pm

vineviz wrote:
Thu Sep 27, 2018 10:33 am
Sorry, Doc, but that is NOT why I was correct. If you enter a market sell order for 1,000 or 10,000 right now (while markets are open) the same thing will happen: all the shares will execute immediately at the bid price.
The "execute immediately" is what I've been trying to get across. But it is not at the bid price. It's at the bid prices starting at the best bid, and then the second best and then the third and so on until the sell order is filled or until all the bids have been exhausted. Maybe that's the single top bid or maybe the tenth lower bid. But a new bid order that comes in can't jump the cue if there were sufficient bids at the start to fill the entire sell order.

In the case I we were discussing to here there was only one bid for 500 shares so 500 shares of the sell order would have been sold at that bid price and the order would remain open until filled or cancelled. The result is that if the sell order is for more than than the top bid then the sell order will execute at more than one price. As long as the total bid offers in the market depth are greater than the total amount of the sell order the entire sell order will be filled immediately before any new bid offers can be considered but possibly at several different prices. Only if the entire sell order does not execute immediately will new bid offers become a part of the sale. In this premarket example there were insufficient bids to fill the entire 1000 share order. When the market opened the number of bids jumped immediately form like 4 to 40 in the time it took my screen to refresh.

This whole thing seems to revolve around the difference in market vs. limit offers and Level 1, Level 2, and Level 3 quotes.

I would guess that the majority of Bogleheads use Vanguard as their brokerage and Vanguard does not provide Level 2 quotes so many Bogleheads are unfamiliar with the idea. But anyone that has a brokerage account should make themselves aware of the difference between market and limit orders if not all the other types that are available.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Thu Sep 27, 2018 2:40 pm

Doc wrote:
Thu Sep 27, 2018 12:35 pm
vineviz wrote:
Thu Sep 27, 2018 10:33 am
Sorry, Doc, but that is NOT why I was correct. If you enter a market sell order for 1,000 or 10,000 right now (while markets are open) the same thing will happen: all the shares will execute immediately at the bid price.
The "execute immediately" is what I've been trying to get across. But it is not at the bid price. It's at the bid prices starting at the best bid, and then the second best and then the third and so on until the sell order is filled or until all the bids have been exhausted.
The falsity of this understanding is, I suspect, at the root cause of a tenacious inability to understand the liquidity of index ETFs.

An elementary understanding of stock trading from the 1980s is not going to help anyone get their brain around this: "Unlike stocks and closed-end funds, but like traditional mutual funds, ETFs are open-end investment companies. This means that shares of ETFs can constantly be added into circulation or taken out of circulation. This attribute of ETFs significantly helps with their liquidity and pricing."

MYTH 2: Secondary market ETF liquidity is limited to what you see on trading systems

FACT: Market makers only display a small fraction of the volume they’re willing to trade.
Most investors trade ETFs on the secondary market (i.e., a stock exchange), so it’s only natural to think that the bid and ask sizes viewable on trading systems are a good representation of an ETF's underlying liquidity. In reality, market makers typically only display a small fraction of the volume they’re willing to trade.
https://www.hartfordfunds.com/dam/en/do ... FWP007.pdf
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Thu Sep 27, 2018 5:45 pm

vineviz wrote:
Thu Sep 27, 2018 2:40 pm
An elementary understanding of stock trading from the 1980s is not going to help anyone get their brain around this: "Unlike stocks and closed-end funds, but like traditional mutual funds, ETFs are open-end investment companies. This means that shares of ETFs can constantly be added into circulation or taken out of circulation. This attribute of ETFs significantly helps with their liquidity and pricing."
Yes market makers can make ETFs very liquid even if they have low trading volume.

But...

1) There's not enough room for market makers to create or uncreate an ETF "unit" with a 25000 share "unit" to do vey much with an ETF that is only trading 10,000 shares a day.

2) Even in a market maker wanted to get into the trading pattern they cannot enter a new bid or ask that disadvantages those buyers and sellers that are already in the execution phase of filling a market order.

Say there are two bids

100 shares @100 (John's order)
100 shares @103 (Doc's order)

vivnevez places a market order to buy order for 200 share

His broker goes to the market maker and says give me a price. the market maker looks at the book and says 200 @ 102.

If his broker fills the order with John's order plus 100 shares of the market makers order the price to vineve.

I got cut out.
SEC wrote:Market Order
A market order is an order to buy or sell a stock at the best available price. Generally, this type of order will be executed immediately. However, the price at which a market order will be executed is not guaranteed. It is important for investors to remember that the last-traded price is not necessarily the price at which a market order will be executed. In fast-moving markets, the price at which a market order will execute often deviates from the last-traded price or “real time” quote.
But the broker has a fiduciary responsibility to me to execute at the best price available why I placed the trade. He can't cut me out on this trade. Yes the liquidy has increased by the money maker but it only affects trades after the already executing trades are completed.

Now if your buy was a limit order @$101 I'm going to lose.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by international001 » Thu Sep 27, 2018 5:50 pm

Where are you guys seeing the orders being filled?

https://www.etf.com/VIOV#tradability ?

BTW.. why it doesn't display the last 10 trades? (IJS does)

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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Fri Sep 28, 2018 6:54 am

Doc wrote:
Thu Sep 27, 2018 5:45 pm
vineviz wrote:
Thu Sep 27, 2018 2:40 pm
An elementary understanding of stock trading from the 1980s is not going to help anyone get their brain around this: "Unlike stocks and closed-end funds, but like traditional mutual funds, ETFs are open-end investment companies. This means that shares of ETFs can constantly be added into circulation or taken out of circulation. This attribute of ETFs significantly helps with their liquidity and pricing."
Yes market makers can make ETFs very liquid even if they have low trading volume.

But...

1) There's not enough room for market makers to create or uncreate an ETF "unit" with a 25000 share "unit" to do vey much with an ETF that is only trading 10,000 shares a day.

2) Even in a market maker wanted to get into the trading pattern they cannot enter a new bid or ask that disadvantages those buyers and sellers that are already in the execution phase of filling a market order.

Both points seem intuitive. Both points are at least partially incorrect.

1) APs are only one group of market participants who work to keep the price of an ETF near NAV, basket creation is just one of the strategies that can be employed to accomplish this goal, and APs can (and often do) hold inventory of the ETFs such that new baskets don't need to be created for every 1,000 or 10,000 share trade that crosses the desk.

2) Market makers ARE free to enter or modify their bid/ask volumes in near real-time: the full number of shares they are willing to trade will not show up on order books. I suppose it is true in one sense that they can't intercede in the middle of trade that is already executing, but they can definitely work fast enough to keep a limit order from executing if the limit price is outside the bid/ask spread. In fact, this is basically their job.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by international001 » Fri Sep 28, 2018 7:15 am

So then you recommend not doing large market orders of VIOV?

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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Fri Sep 28, 2018 7:19 am

international001 wrote:
Fri Sep 28, 2018 7:15 am
So then you recommend not doing large market orders of VIOV?
No, that's not at all what I'm recommending.

I'm saying VIOV is sufficiently liquid that there is no rational reason NOT to use a market order if you want immediate execution.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by international001 » Fri Sep 28, 2018 9:11 am

vineviz wrote:
Fri Sep 28, 2018 7:19 am
international001 wrote:
Fri Sep 28, 2018 7:15 am
So then you recommend not doing large market orders of VIOV?
No, that's not at all what I'm recommending.

I'm saying VIOV is sufficiently liquid that there is no rational reason NOT to use a market order if you want immediate execution.
Of any size?

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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Fri Sep 28, 2018 9:21 am

international001 wrote:
Fri Sep 28, 2018 9:11 am
vineviz wrote:
Fri Sep 28, 2018 7:19 am
international001 wrote:
Fri Sep 28, 2018 7:15 am
So then you recommend not doing large market orders of VIOV?
No, that's not at all what I'm recommending.

I'm saying VIOV is sufficiently liquid that there is no rational reason NOT to use a market order if you want immediate execution.
Of any size?
Pretty much, yes.

If I were putting in an order for 10,000 shares of VIOV I might call my broker's trading specialist first for guidance, but that's a $1.4 million trade.

But see my earlier post about a trade I made in ISZE last week: what was essentially a market buy order for 3x the average daily volume executed immediately at the ask price (with 340x the indicated ask quantity).

For an index ETF, liquidity just isn't the problem any investors believe it is.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Fri Sep 28, 2018 5:14 pm

vineviz wrote:
Fri Sep 28, 2018 6:54 am
Both points seem intuitive. Both points are at least partially incorrect.
We have been talking past each other for the last several days.

Most of the problem concerns what "liquidity" means.

A) Large order execution:

If you place a limit with an "all or none" restriction for a large number of shares (say 25000) with the price at say ± 20 bps I have no doubt that you might attract a response from an authorized participant that will fulfill your order. This is one measure of liquidity.

B) Small order execution:

If you place similar limit but smaller order with the same "all or none" restriction you will not attract that authorized participant response and your order may or may not be filled. If you drop the all or none restriction you might get a partial fill. If you drop the "limit" constraint you will likely get the order filled but at some yet to be determined price but different than you desired. The more trade volume that the security has the less the probability of the adverse effects become. This is another measure of "liquidity". (If you prefer another term for this type of event please let me know.)

In any case using a low trade volume security like VOIV as opposed to higher trade volume security like IJS increase the probability that a type B) liquidity situation will adversely affect your trade.

I have no idea whether or not the type A) liquidity situation would be relevant in the VIOV vs IJS choice.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Fri Sep 28, 2018 5:22 pm

vineviz wrote:
Fri Sep 28, 2018 9:21 am
But see my earlier post about a trade I made in ISZE last week: what was essentially a market buy order for 3x the average daily volume executed immediately at the ask price (with 340x the indicated ask quantity).
That's amazing.

Might it have something to do with whether European exchanges were open at the time?

Per M*, average volume 1,590.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by stlutz » Fri Sep 28, 2018 5:54 pm

Doc: You might want to sign up for this site: surveyorapp.trlm.com, where you can look at historical trade by trade data.

I looked up ISZE and can confirm that vineviz's trade occurred just as advertised.

I then went over to ETF.com and looked at VIOV and saw it had very unusually high volume on May 18th. I went back to surveyorapp and took a look and there was a single trade execution for 85,654 shares of VIOV about an hour after market open. The price was very much in line with the trades that came before and after it and was within the quoted spread at the time. As far as I can tell, this trade was a complete non-event. Or to pick something less extreme, there was an execution for 5087 shares on Sept. 12th. Again, it was within the quoted spread and no discernible market impact.

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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Fri Sep 28, 2018 7:52 pm

Doc wrote:
Fri Sep 28, 2018 5:14 pm

B) Small order execution:

If you place similar limit but smaller order with the same "all or none" restriction you will not attract that authorized participant response and your order may or may not be filled. If you drop the all or none restriction you might get a partial fill.
This is a false conjecture. Not at all all how it works.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Fri Sep 28, 2018 8:02 pm

vineviz wrote:
Fri Sep 28, 2018 7:52 pm
Doc wrote:
Fri Sep 28, 2018 5:14 pm

B) Small order execution:

If you place similar limit but smaller order with the same "all or none" restriction you will not attract that authorized participant response and your order may or may not be filled. If you drop the all or none restriction you might get a partial fill.
This is a false conjecture. Not at all all how it works.
How does it work?

If I place an all or none order for 100 shares some authorized participant is going to take that order? If the creation unit is 25000 shares is the A P really going to respond to a 100 share order? If so I really need to rethink this whole thing.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Fri Sep 28, 2018 9:50 pm

Doc wrote:
Fri Sep 28, 2018 8:02 pm
If I place an all or none order for 100 shares some authorized participant is going to take that order? If the creation unit is 25000 shares is the A P really going to respond to a 100 share order? If so I really need to rethink this whole thing.
Sure, why not? It's not as if the market maker (or AP) has to make a basket from scratch every time. Just like your gas station doesn't refine every gallon of gas specifically for you, the AP can create the ETFs in bulk and then hold them in inventory. Or they might buy 1,000 shares from me on Friday and sell 400 of them to you on Tuesday.

Also, keep in mind that APs (I think Vanguard calls them participating dealers, or PDs) aren't the only primary market participants. Other market makers are involved as well.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Sat Sep 29, 2018 9:59 am

vineviz wrote:
Fri Sep 28, 2018 9:50 pm
Doc wrote:
Fri Sep 28, 2018 8:02 pm
If I place an all or none order for 100 shares some authorized participant is going to take that order? If the creation unit is 25000 shares is the A P really going to respond to a 100 share order? If so I really need to rethink this whole thing.
Sure, why not? It's not as if the market maker (or AP) has to make a basket from scratch every time. Just like your gas station doesn't refine every gallon of gas specifically for you, the AP can create the ETFs in bulk and then hold them in inventory. Or they might buy 1,000 shares from me on Friday and sell 400 of them to you on Tuesday.

Also, keep in mind that APs (I think Vanguard calls them participating dealers, or PDs) aren't the only primary market participants. Other market makers are involved as well.
Let's call the APs, PDs and other market makers Big Guys (BG).

So if there is a bid from the masses that is more than the NAV, the BG will sell to fill that bid. So the maximum bid in the market depth is the NAV.

On the other side of the ledger if the ask from the masses is less than the NAV, the BG will buy that offer. So the minimum bid on the ask side is greater than the NAV.

I think this means that a limit order can there only fill at the NAV ± a small amount the will cover the BG's cost plus a little profit.

But a market offer can trade anywhere in the market depth because the BG doesn't ever sees the offer because it fills immediately.

If this is correct we should be able to get a handle on the IJS/VIOV tradability question by looking at the spread at the top of the list for each of them. :?:

That still leaves open the question of how long you are willing to wait for your offer to execute which I think is a trading volume rather than a price question.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Sat Sep 29, 2018 12:19 pm

Doc wrote:
Sat Sep 29, 2018 9:59 am

I think this means that a limit order can there only fill at the NAV ± a small amount the will cover the BG's cost plus a little profit.

But a market offer can trade anywhere in the market depth because the BG doesn't ever sees the offer because it fills immediately.
Half right. The first statement will apply to both market and limit orders: BGs work both market and limit orders.
That still leaves open the question of how long you are willing to wait for your offer to execute which I think is a trading volume rather than a price question.
Market orders will execute immediately in full.

Limit orders will delay in strict relationship to how far outside the bid/ask spread the limit is. The farther from NAV a limit order is, the longer you will wait for execution. Maybe forever if the NAV never moves in your direction.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Sat Sep 29, 2018 1:00 pm

This post highlights where I get messed up.
vineviz wrote:
Sat Sep 29, 2018 12:19 pm
BGs work both market and limit orders.
How can they see the market order? It is my understanding that market orders fill immediately and you seem to agree.
vineviz wrote:
Sat Sep 29, 2018 12:19 pm
Market orders will execute immediately in full.
OK if the BGs already have a bid in the "cue" it will execute according to its position before the market order enters the system. If they were able to place a new bid and fill (part) of the market order before already existing orders wouldn't that be a violation of somebody's fiduciary responsibilities to the existing bidders?
vineviz wrote:
Sat Sep 29, 2018 12:19 pm
Limit orders will delay in strict relationship to how far outside the bid/ask spread the limit is. The farther from NAV a limit order is, the longer you will wait for execution. Maybe forever if the NAV never moves in your direction.
Don't they keep executing as long as there are opposing bids and pause only if they run out of bids? (That may be what you mean.) If they run out they just sit there and then the BGs can come in and grab the rest. No? And it could take forever or perhaps worse execute at a very undesirable price. At the point they pause maybe they do display in the book. I don't know that one.

You may be convincing me not to use limit orders with ETFs at least when the the book is very shallow.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Sat Sep 29, 2018 3:49 pm

Doc wrote:
Sat Sep 29, 2018 1:00 pm
This post highlights where I get messed up.
vineviz wrote:
Sat Sep 29, 2018 12:19 pm
BGs work both market and limit orders.
How can they see the market order? It is my understanding that market orders fill immediately and you seem to agree.
vineviz wrote:
Sat Sep 29, 2018 12:19 pm
Market orders will execute immediately in full.
OK if the BGs already have a bid in the "cue" it will execute according to its position before the market order enters the system. If they were able to place a new bid and fill (part) of the market order before already existing orders wouldn't that be a violation of somebody's fiduciary responsibilities to the existing bidders?
Remember the distinction I drew earlier between primary and secondary markets: this is where that distinction is critical to understanding what's going on here.

As primary market participants, market markers do indeed have the ability to manage both their bid/ask prices and quantities in real-time. The liquidity that these market makers provide may very well be invisible to retail investors (even those with Level 2 quote access) but it's there nonetheless. When you enter an order with your broker, that broker's trading system is querying not only the open secondary market book but also the (hidden) primary market as well.

It's true that all open orders must be treated equitably, but there is nothing to prevent my broker from executing my market order at a price that is better than the limit order price that you gave your broker.
vineviz wrote:
Sat Sep 29, 2018 12:19 pm
Limit orders will delay in strict relationship to how far outside the bid/ask spread the limit is. The farther from NAV a limit order is, the longer you will wait for execution. Maybe forever if the NAV never moves in your direction.
Don't they keep executing as long as there are opposing bids and pause only if they run out of bids?
[/quote]

I guess I was thinking of a limit order that is outside the bid/ask spread. Markets are currently closed, but imagine the bid/ask for VIOV is currently $143.88/$143.96: if I place a buy order with a limit of $143.80, that order might NEVER execute. That's the case I was referring to. If you meant something else, maybe just clarify it for me.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by stlutz » Sat Sep 29, 2018 3:53 pm

vineviz: Question for you. For the purposes of overall order execution, is a market order any better or worse than a marketable-limit order?

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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by vineviz » Sat Sep 29, 2018 4:25 pm

stlutz wrote:
Sat Sep 29, 2018 3:53 pm
vineviz: Question for you. For the purposes of overall order execution, is a market order any better or worse than a marketable-limit order?
In virtually all cases the overall execution would be similar for a security like VIOV. At least, that's what the market microstructure dictates and my experience is similar.

Personally, I usually use a straight market order on my sells and a marketable-limit order on buys (with the limit set $0.01 above the prevailing ask at the time I enter my order) just to ensure I don't buy more shares than the cash-on-hand in my settlement account can accommodate. So far, I've never had such a marketable-limit buy order fail to execute in full at once.
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Re: SLYV vs IJS [SPDR vs. iShares S&P 600 Small Cap Value]

Post by Doc » Sat Sep 29, 2018 4:34 pm

vineviz wrote:
Sat Sep 29, 2018 3:49 pm
It's true that all open orders must be treated equitably, but there is nothing to prevent my broker from executing my market order at a price that is better than the limit order price that you gave your broker.
Not the issue. Say that I place a market order to buy for 300 shares.

At the time I place the trade the asks are:

100 @ $143
100 @ $144
100 @ $145

My order should execute for 300 @ an average cost or $144 assuming there are no other existing buy orders in the way.

What I'm questioning is whether some other buyer can come in and take that second or third offer away from me while my order is executing. 1) I don't think that's allowed and 2) They never see my market order at all so have no guidance.

I may not be explaining this well.

Anyway,

Question, can anyone somehow see unfilled market orders? I only see bid/asks with a price.
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