How do you trade ETFs exactly like mutual funds?

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b0B
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How do you trade ETFs exactly like mutual funds?

Post by b0B » Fri Oct 19, 2018 12:45 pm

I prefer mutual funds, but have ended up with some ETFs as a consequence of chasing Brokerage Bonuses and BofA/ME Preferred Rewards, and I'm questioning if the hassle and risk of ETFs makes it worthwhile.

What I would like to know, how can I buy or sell (or exchange) ETFs so that the trade definitely executes, and is definitely priced at the market close NAV (or very close)? This is for high volume, but volatile funds, e.g. VTI. Certainty of execution is the crucial thing. I'm not so concerned about the relatively small pricing differences from bid/ask spread or Premium/Discount (1 or 2 bp?). But I am extremely concerned about failure to execute, and/or getting a bad price as prices fluctuate 1% or more during the day, resulting in significant losses.

Here is some context. I have many types of accounts: retirement (IRA and non-IRA), 529, HSA, taxable, with most of the balance in accounts with limited fund lineups of mutual funds (including cheap index funds). At the overall portfolio level, I am mostly stocks, but I am now neither buying nor selling stocks, just accumulting more cash/bonds. But I do sometimes need to sell stocks in one account and buy that amount in another account. In other words I do a combination of two or more buys/sells/exchanges that is overall neutral, and with mutual funds these all happen simultaneously at market close, and definitely execute, so price fluctuations are not a great concern.

E.g. suppose in one of your accounts there is a fund lineup change and you can save on expenses by shifting holdings around (without changing overall portfolio). You want to exhange $250k of US Stocks for International Stocks in Account 1, while exhanging $250k of International Stocks for US Stocks in Account 2. With mutual funds this is fine. With ETFs this is extremely risky, as you'd have four $250k transactions (total $1M), any one of which could go wrong, by getting a bad price, or by not executing while the market move away from you. With ETFs, you could easily lose $10k or more compared to mutual funds.

So is there a safe way of doing this with ETFs? For example, how could I sell VTI at Merrill Edge, and buy the same ammount of VTSAX at Vanguard, so that execution is 100% certain, and the price is guaranteed to be close (a few bp is tolerable, but not 1%)?

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David Jay
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Re: How do you trade ETFs exactly like mutual funds?

Post by David Jay » Fri Oct 19, 2018 2:10 pm

b0B wrote:
Fri Oct 19, 2018 12:45 pm
...how could I sell VTI at Merrill Edge, and buy the same ammount of VTSAX at Vanguard, so that execution is 100% certain, and the price is guaranteed to be close (a few bp is tolerable, but not 1%)?
Why don't you buy VTI at Vanguard? If you sell VTI at Merrill and buy VTI at Vanguard within a few minutes of each other, you will get reasonably similar pricing.

Otherwise, you will always face the issue because this is the essential difference between Mutual Funds and ETFs. Mutual funds are priced daily and ETFs actively trade on exchanges.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: How do you trade ETFs exactly like mutual funds?

Post by arf30 » Fri Oct 19, 2018 2:12 pm

David Jay wrote:
Fri Oct 19, 2018 2:10 pm
Why don't you buy VTI at Vanguard?
The reason is usually to get bonuses, access to certain credit cards, or preferred perks/status (like free wires or global ATM refunds) at banks like Chase/BoA/Wells Fargo etc where they require a minimum level of assets.

That said, I don't want to deal with things like bid/ask spreads, flash crashes, limit orders, and lack of automated investing, so I stick to mutual funds.

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Re: How do you trade ETFs exactly like mutual funds?

Post by MotoTrojan » Fri Oct 19, 2018 2:19 pm

I would have the MF trade setup to hit at the close, and transact the ETF 5 minutes from market close. For $250K I'd be uncomfortable using a market order, but it should be safe for something like VTI. Alternatively a limit order $0.01 from the bid/ask should execute right away and protect you from a flash-crash type event.

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Re: How do you trade ETFs exactly like mutual funds?

Post by carguyny » Fri Oct 19, 2018 2:23 pm

Certain brokers (.e.g. Interactive Brokers) let you place "Market at Close" orders, so it will be pretty close. However, it doesn't account for the premium/discount the ETF might be trading at.

b0B
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Re: How do you trade ETFs exactly like mutual funds?

Post by b0B » Fri Oct 19, 2018 2:27 pm

David Jay wrote:
Fri Oct 19, 2018 2:10 pm
b0B wrote:
Fri Oct 19, 2018 12:45 pm
...how could I sell VTI at Merrill Edge, and buy the same ammount of VTSAX at Vanguard, so that execution is 100% certain, and the price is guaranteed to be close (a few bp is tolerable, but not 1%)?
Why don't you buy VTI at Vanguard? If you sell VTI at Merrill and buy VTI at Vanguard within a few minutes of each other, you will get reasonably similar pricing.

Otherwise, you will always face the issue because this is the essential difference between Mutual Funds and ETFs. Mutual funds are priced daily and ETFs actively trade on exchanges.
This doesn't work. I would want a method that is 100% guaranteed for both to execute and to do so at the exact same price. Also, I may want to "convert" from ETF to MF.
MotoTrojan wrote:
Fri Oct 19, 2018 2:19 pm
I would have the MF trade setup to hit at the close, and transact the ETF 5 minutes from market close. For $250K I'd be uncomfortable using a market order, but it should be safe for something like VTI. Alternatively a limit order $0.01 from the bid/ask should execute right away and protect you from a flash-crash type event.
Again, this also falls into the "probably okay most of the time" category, but I can still see it going wrong.
arf30 wrote:
Fri Oct 19, 2018 2:12 pm
David Jay wrote:
Fri Oct 19, 2018 2:10 pm
Why don't you buy VTI at Vanguard?
The reason is usually to get bonuses, access to certain credit cards, or preferred perks/status (like free wires or global ATM refunds) at banks like Chase/BoA/Wells Fargo etc where they require a minimum level of assets.

That said, I don't want to deal with things like bid/ask spreads, flash crashes, limit orders, and lack of automated investing, so I stick to mutual funds.
Right. There are some rewards, but for me, being pushed towards ETFs rather than MFs, is an opportunity cost, that I am trying to weigh up.

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Re: How do you trade ETFs exactly like mutual funds?

Post by b0B » Fri Oct 19, 2018 2:30 pm

carguyny wrote:
Fri Oct 19, 2018 2:23 pm
Certain brokers (.e.g. Interactive Brokers) let you place "Market at Close" orders, so it will be pretty close. However, it doesn't account for the premium/discount the ETF might be trading at.
Now this might be something! I don't know exactly what a "Market at Close" order is, but maybe it could be the right kind of thing. I'll have to look into that. Then there's also the question of what brokers have this kind of option.

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David Jay
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Re: How do you trade ETFs exactly like mutual funds?

Post by David Jay » Fri Oct 19, 2018 2:37 pm

b0B wrote:
Fri Oct 19, 2018 2:27 pm
This doesn't work. I would want...
:musical_note: You can't always get what you waaant :musical_note:
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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jhfenton
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Re: How do you trade ETFs exactly like mutual funds?

Post by jhfenton » Fri Oct 19, 2018 2:43 pm

b0B wrote:
Fri Oct 19, 2018 2:30 pm
carguyny wrote:
Fri Oct 19, 2018 2:23 pm
Certain brokers (.e.g. Interactive Brokers) let you place "Market at Close" orders, so it will be pretty close. However, it doesn't account for the premium/discount the ETF might be trading at.
Now this might be something! I don't know exactly what a "Market at Close" order is, but maybe it could be the right kind of thing. I'll have to look into that. Then there's also the question of what brokers have this kind of option.
"Market at Close" would work to catch the closing auction price, if you have a broker that offers that.

The option that would work at Vanguard is a pre-market limit order. That ends up being executed as a "Market on open" order to catch the opening cross. I've used it to swap VSS (Vanguard FTSE all-World ex-US Small Cap) between two retirement accounts.

I described it here and here.

Subsequent to my initial 1-share experiment, I made the swap with a few hundred shares of VSS.

b0B
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Re: How do you trade ETFs exactly like mutual funds?

Post by b0B » Fri Oct 19, 2018 2:45 pm

^ Thanks for the links to other threads!

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Re: How do you trade ETFs exactly like mutual funds?

Post by b0B » Fri Oct 19, 2018 8:16 pm

jhfenton wrote:
Fri Oct 19, 2018 2:43 pm
b0B wrote:
Fri Oct 19, 2018 2:30 pm
carguyny wrote:
Fri Oct 19, 2018 2:23 pm
Certain brokers (.e.g. Interactive Brokers) let you place "Market at Close" orders, so it will be pretty close. However, it doesn't account for the premium/discount the ETF might be trading at.
Now this might be something! I don't know exactly what a "Market at Close" order is, but maybe it could be the right kind of thing. I'll have to look into that. Then there's also the question of what brokers have this kind of option.
"Market at Close" would work to catch the closing auction price, if you have a broker that offers that.

The option that would work at Vanguard is a pre-market limit order. That ends up being executed as a "Market on open" order to catch the opening cross. I've used it to swap VSS (Vanguard FTSE all-World ex-US Small Cap) between two retirement accounts.

I described it here and here.

Subsequent to my initial 1-share experiment, I made the swap with a few hundred shares of VSS.
Thanks. I looked at those, and also found this one viewtopic.php?f=10&t=257428&newpost=4087520

I don't really understand the mechanism.

I checked some brokerages (Vang, Fid, M Edge, ETrade) and they didn't seem to have "Market on Open" and only ET had "Market on Close".

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jhfenton
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Re: How do you trade ETFs exactly like mutual funds?

Post by jhfenton » Fri Oct 19, 2018 8:35 pm

b0B wrote:
Fri Oct 19, 2018 8:16 pm
Thanks. I looked at those, and also found this one viewtopic.php?f=10&t=257428&newpost=4087520

I don't really understand the mechanism.

I checked some brokerages (Vang, Fid, M Edge, ETrade) and they didn't seem to have "Market on Open" and only ET had "Market on Close".
Yes. There are no explicit "Market on Open" (MOO) or "Limit on Open" (LOO) orders at Vanguard. But if you place a pre-market (before 9:30 AM ET) order, it will be treated as MOO or LOO. That was what my initial 1-share experiment was for, and I used the technique once later to effectively trade ETFs between two accounts. You get the same price (the opening cross) on the matching buy and sell orders, so your only cost is the SEC fee on the sale side (currently $13.00 per million or 0.0013%).

I used LOO orders with overlapping prices just to make myself feel more secure than if I submitted a market order into crazy pre-market bid/ask spreads. (Vanguard doesn't execute pre-market as far as I know, but I haven't tested it.) For example VTI closed today at $141.35. If I wanted to "move it" from one IRA to another on Monday morning, I could place a limit order to buy 100 shares at $148 or less and a limit order to sell 100 shares at $135 or more (depending on how wide you want to make the window). If VTI opened at $141.62, I would get that price on both orders.

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Re: How do you trade ETFs exactly like mutual funds?

Post by whodidntante » Fri Oct 19, 2018 8:58 pm

b0B wrote:
Fri Oct 19, 2018 12:45 pm
Certainty of execution is the crucial thing.
Mutual funds trade at next NAV, which is unknown to you until a couple of hours after the market closes. ETFs can be traded with limit orders or marketable limit orders, and you know for certain you won't get a worse price than you specified. That's a greater degree of certainty than a mutual fund can provide. Why is intra-day volatility a concern for you, while daily closing price volatility is not? Over a lifetime of investment purchases, sometimes you'll get a better price intra-day, and sometimes you won't. But it's not going to matter much.

b0B
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Re: How do you trade ETFs exactly like mutual funds?

Post by b0B » Fri Oct 19, 2018 10:05 pm

jhfenton wrote:
Fri Oct 19, 2018 8:35 pm
b0B wrote:
Fri Oct 19, 2018 8:16 pm
Thanks. I looked at those, and also found this one viewtopic.php?f=10&t=257428&newpost=4087520

I don't really understand the mechanism.

I checked some brokerages (Vang, Fid, M Edge, ETrade) and they didn't seem to have "Market on Open" and only ET had "Market on Close".
Yes. There are no explicit "Market on Open" (MOO) or "Limit on Open" (LOO) orders at Vanguard. But if you place a pre-market (before 9:30 AM ET) order, it will be treated as MOO or LOO. That was what my initial 1-share experiment was for, and I used the technique once later to effectively trade ETFs between two accounts. You get the same price (the opening cross) on the matching buy and sell orders, so your only cost is the SEC fee on the sale side (currently $13.00 per million or 0.0013%).

I used LOO orders with overlapping prices just to make myself feel more secure than if I submitted a market order into crazy pre-market bid/ask spreads. (Vanguard doesn't execute pre-market as far as I know, but I haven't tested it.) For example VTI closed today at $141.35. If I wanted to "move it" from one IRA to another on Monday morning, I could place a limit order to buy 100 shares at $148 or less and a limit order to sell 100 shares at $135 or more (depending on how wide you want to make the window). If VTI opened at $141.62, I would get that price on both orders.
One thing I realized is that if, say, I am selling ETFs in one account and buying mutual funds in another, (or doing a combination of transactions involving both kinds) since the mutual funds trade at market close, I'd need the ETFs to trade at that time too. So I'd probably need "Market on Close", not "Market on Open". It's looking like it is hard to do what I want to do with ETFs, which means there is an an opportunity cost to chasing Brokerage Bonuses and BofA/ME Preferred Rewards.

b0B
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Re: How do you trade ETFs exactly like mutual funds?

Post by b0B » Fri Oct 19, 2018 10:08 pm

whodidntante wrote:
Fri Oct 19, 2018 8:58 pm
b0B wrote:
Fri Oct 19, 2018 12:45 pm
Certainty of execution is the crucial thing.
Mutual funds trade at next NAV, which is unknown to you until a couple of hours after the market closes. ETFs can be traded with limit orders or marketable limit orders, and you know for certain you won't get a worse price than you specified. That's a greater degree of certainty than a mutual fund can provide. Why is intra-day volatility a concern for you, while daily closing price volatility is not? Over a lifetime of investment purchases, sometimes you'll get a better price intra-day, and sometimes you won't. But it's not going to matter much.
Remember (see OP) I'm talking about combination of two or more buys/sells/exchanges, in various accounts, without changing the overall portfolio, in effect moving assets around (see OP). In this scenario, I don't care what the market close NAVs are, since they don't affect the result (or there are at most second order effects). E.g. from OP: with MFs, to "exhange $250k of US Stocks for International Stocks in Account 1, while exhanging $250k of International Stocks for US Stocks in Account 2" the result is to effectively move funds between accounts, in a way that is unaffected by price movements.

But try doing that with all ETFs. You have two buys and two sells. There is (seemingly) no way to guarantee the prices match and also guarantee execution of all four transactions. You don't need certainty about the price of just one isolated transaction (which may or may not execute), but rather you need two (or more) transactions to execute at the same price (who cares what that price is) and you need certainty that they all execute.

With ETFs there is a huge risk the prices don't match, or not all execute, leaving you with cash (or debt) and you only get back to your position at a big loss. You say you could lose some and win some in such sceanrio, but I believe this is at best return-free risk, and you will lose in the long run from this.

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vineviz
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Re: How do you trade ETFs exactly like mutual funds?

Post by vineviz » Sat Oct 20, 2018 12:34 am

b0B wrote:
Fri Oct 19, 2018 10:08 pm
whodidntante wrote:
Fri Oct 19, 2018 8:58 pm
b0B wrote:
Fri Oct 19, 2018 12:45 pm
Certainty of execution is the crucial thing.
Mutual funds trade at next NAV, which is unknown to you until a couple of hours after the market closes. ETFs can be traded with limit orders or marketable limit orders, and you know for certain you won't get a worse price than you specified. That's a greater degree of certainty than a mutual fund can provide. Why is intra-day volatility a concern for you, while daily closing price volatility is not? Over a lifetime of investment purchases, sometimes you'll get a better price intra-day, and sometimes you won't. But it's not going to matter much.
Remember (see OP) I'm talking about combination of two or more buys/sells/exchanges, in various accounts, without changing the overall portfolio, in effect moving assets around (see OP). In this scenario, I don't care what the market close NAVs are, since they don't affect the result (or there are at most second order effects). E.g. from OP: with MFs, to "exhange $250k of US Stocks for International Stocks in Account 1, while exhanging $250k of International Stocks for US Stocks in Account 2" the result is to effectively move funds between accounts, in a way that is unaffected by price movements.

But try doing that with all ETFs. You have two buys and two sells. There is (seemingly) no way to guarantee the prices match and also guarantee execution of all four transactions. You don't need certainty about the price of just one isolated transaction (which may or may not execute), but rather you need two (or more) transactions to execute at the same price (who cares what that price is) and you need certainty that they all execute.

With ETFs there is a huge risk the prices don't match, or not all execute, leaving you with cash (or debt) and you only get back to your position at a big loss. You say you could lose some and win some in such sceanrio, but I believe this is at best return-free risk, and you will lose in the long run from this.
I don’t entirely understand why the tiny difference in price that would result from the 30-45 second gap between the sale and subsequent buy matters to you. But if you care, that’s your right.

But using phrases like “big risk” and “big loss” is inarguably a case of hyperbole: there is objectively no material risk to your wealth from the trades described in the OP.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

b0B
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Re: How do you trade ETFs exactly like mutual funds?

Post by b0B » Sat Oct 20, 2018 12:58 am

"is inarguably a case of hyperbole" is inarguably a case of hyperbole! :wink:

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vineviz
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Re: How do you trade ETFs exactly like mutual funds?

Post by vineviz » Sat Oct 20, 2018 1:23 am

b0B wrote:
Sat Oct 20, 2018 12:58 am
"is inarguably a case of hyperbole" is inarguably a case of hyperbole! :wink:
Only if you think risking 0.01% is actually a big risk.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: How do you trade ETFs exactly like mutual funds?

Post by unclescrooge » Sat Oct 20, 2018 1:29 am

whodidntante wrote:
Fri Oct 19, 2018 8:58 pm
b0B wrote:
Fri Oct 19, 2018 12:45 pm
Certainty of execution is the crucial thing.
Mutual funds trade at next NAV, which is unknown to you until a couple of hours after the market closes. ETFs can be traded with limit orders or marketable limit orders, and you know for certain you won't get a worse price than you specified. That's a greater degree of certainty than a mutual fund can provide. Why is intra-day volatility a concern for you, while daily closing price volatility is not? Over a lifetime of investment purchases, sometimes you'll get a better price intra-day, and sometimes you won't. But it's not going to matter much.
+1

It anything, OP should favor ETFs over MFs, especially non-vanguard ETFs in taxable accounts

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Re: How do you trade ETFs exactly like mutual funds?

Post by arf30 » Sat Oct 20, 2018 7:15 am

I'm surprised to see so many people trading at or near market close/open, especially when so many online resources recommend against it due to price fluctuations (including Vanguard).

SlowMovingInvestor
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Re: How do you trade ETFs exactly like mutual funds?

Post by SlowMovingInvestor » Sat Oct 20, 2018 7:57 am

arf30 wrote:
Sat Oct 20, 2018 7:15 am
I'm surprised to see so many people trading at or near market close/open, especially when so many online resources recommend against it due to price fluctuations (including Vanguard).
I think the recommendations against it are generally that you might be surprised by the price you get -- but the fluctuations can work against you or for you. In the long run, I expect it to all work out neutral in a widely traded, liquid ETF at least.

Is there some research showing wilder swings in liquid ETFs at the end of the day ?

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Re: How do you trade ETFs exactly like mutual funds?

Post by typical.investor » Sat Oct 20, 2018 7:58 am

vineviz wrote:
Sat Oct 20, 2018 12:34 am
b0B wrote:
Fri Oct 19, 2018 10:08 pm
whodidntante wrote:
Fri Oct 19, 2018 8:58 pm
b0B wrote:
Fri Oct 19, 2018 12:45 pm
Certainty of execution is the crucial thing.
Mutual funds trade at next NAV, which is unknown to you until a couple of hours after the market closes. ETFs can be traded with limit orders or marketable limit orders, and you know for certain you won't get a worse price than you specified. That's a greater degree of certainty than a mutual fund can provide. Why is intra-day volatility a concern for you, while daily closing price volatility is not? Over a lifetime of investment purchases, sometimes you'll get a better price intra-day, and sometimes you won't. But it's not going to matter much.
Remember (see OP) I'm talking about combination of two or more buys/sells/exchanges, in various accounts, without changing the overall portfolio, in effect moving assets around (see OP). In this scenario, I don't care what the market close NAVs are, since they don't affect the result (or there are at most second order effects). E.g. from OP: with MFs, to "exhange $250k of US Stocks for International Stocks in Account 1, while exhanging $250k of International Stocks for US Stocks in Account 2" the result is to effectively move funds between accounts, in a way that is unaffected by price movements.

But try doing that with all ETFs. You have two buys and two sells. There is (seemingly) no way to guarantee the prices match and also guarantee execution of all four transactions. You don't need certainty about the price of just one isolated transaction (which may or may not execute), but rather you need two (or more) transactions to execute at the same price (who cares what that price is) and you need certainty that they all execute.

With ETFs there is a huge risk the prices don't match, or not all execute, leaving you with cash (or debt) and you only get back to your position at a big loss. You say you could lose some and win some in such sceanrio, but I believe this is at best return-free risk, and you will lose in the long run from this.
I don’t entirely understand why the tiny difference in price that would result from the 30-45 second gap between the sale and subsequent buy matters to you. But if you care, that’s your right.

But using phrases like “big risk” and “big loss” is inarguably a case of hyperbole: there is objectively no material risk to your wealth from the trades described in the OP.
What is taking 30-45 seconds? 4 transactions? Why not just open several browser windows. You should be able to get all 4 showing in the screen at same time (macOS lets you add that functionality at least). It’s not difficult to set a trade you can have confidence will execute.

Just do them all at once.

If anything, there might be a small amount that doesn’t get bought because you have to be a little conservative about the buy as you don’t know exactly what you’ll get for the sell, but you do know the number of shares and the minimum you’ll acccept. So you can calculate the the shares to buy at the highest price you might have to pay.

Just make all the orders marketable, execute at the same time, and place another set of buys for anything remaining (one for the account buying us and one for the account buying foreign).

If the tiny difference bothers you, looking into an automated web testing framework like selenium or something like that. You can program the cursor to go wherever you want, read the spreads or how much you received and place another trade.

I bet you could get the whole thing to execute, and place trades for the remaining in three seconds. It’s just a matter of how long it takes the broker to show your results.

Not worth the effort I think. I’d just do it manually in four windows, and then do the remainder.

Once you tax loss harvest, you might not be in the same family of funds and couldn’t simply exchange. You’d have the problem of not knowing how much to buy.

At least with ETFs you’d know a minimum amount you’d fetch, and wouldn’t have to deal with overnight news like you would with mutual funds. You could just quickly place an order for the remainder.

I don’t see a big risk here.

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Re: How do you trade ETFs exactly like mutual funds?

Post by vineviz » Sat Oct 20, 2018 8:09 am

typical.investor wrote:
Sat Oct 20, 2018 7:58 am
What is taking 30-45 seconds? 4 transactions? Why not just open several browser windows. You should be able to get all 4 showing in the screen at same time (macOS lets you add that functionality at least). It’s not difficult to set a trade you can have confidence will execute.
I was making a (perhaps overly generous) allowance that the OP might not be quite as fast on the keyboard as you or I are, and assuming that the OP might want to confirm the sell order executed at the expected price before entering the buy order.

But you're right, the point is that prices don't move so fast that this process is exposing the investor to any substantial risks.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: How do you trade ETFs exactly like mutual funds?

Post by vineviz » Sat Oct 20, 2018 8:12 am

SlowMovingInvestor wrote:
Sat Oct 20, 2018 7:57 am
arf30 wrote:
Sat Oct 20, 2018 7:15 am
I'm surprised to see so many people trading at or near market close/open, especially when so many online resources recommend against it due to price fluctuations (including Vanguard).
I think the recommendations against it are generally that you might be surprised by the price you get -- but the fluctuations can work against you or for you. In the long run, I expect it to all work out neutral in a widely traded, liquid ETF at least.

Is there some research showing wilder swings in liquid ETFs at the end of the day ?
It's generally true that stock volatility is higher in the first hour of trading each day and the last 15-30 minutes, and this would carry over to ETFs that invest in those stocks as well.

You're undoubtedly right that the volatility would have no expected effect on returns in aggregate, but the OP seems worried mostly about volatility itself.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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vineviz
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Re: How do you trade ETFs exactly like mutual funds?

Post by vineviz » Sat Oct 20, 2018 8:17 am

arf30 wrote:
Sat Oct 20, 2018 7:15 am
I'm surprised to see so many people trading at or near market close/open, especially when so many online resources recommend against it due to price fluctuations (including Vanguard).
I agree. I don't tend to worry much about intraday volatility, since I consider myself to be a long-term investor, but I'd definitely avoid executing orders in the first or last 30 minutes of the trading day if I could.

For international stocks, it's also useful to keep in mind that most European markets close by 11:30 am eastern time. For someone trying to minimize both volatility and bid/ask spreads, I'd say the "sweet spot" for exchanging between US and international ETFs is probably 10:30am to 11:15am: that'd be the least chaotic time to enter your ETF orders, I think, if you were super paranoid about this kind of thing.
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Re: How do you trade ETFs exactly like mutual funds?

Post by lilyn20 » Sat Oct 20, 2018 8:17 am

b0B wrote:
Fri Oct 19, 2018 8:16 pm
jhfenton wrote:
Fri Oct 19, 2018 2:43 pm
b0B wrote:
Fri Oct 19, 2018 2:30 pm
carguyny wrote:
Fri Oct 19, 2018 2:23 pm
Certain brokers (.e.g. Interactive Brokers) let you place "Market at Close" orders, so it will be pretty close. However, it doesn't account for the premium/discount the ETF might be trading at.
Now this might be something! I don't know exactly what a "Market at Close" order is, but maybe it could be the right kind of thing. I'll have to look into that. Then there's also the question of what brokers have this kind of option.
"Market at Close" would work to catch the closing auction price, if you have a broker that offers that.

The option that would work at Vanguard is a pre-market limit order. That ends up being executed as a "Market on open" order to catch the opening cross. I've used it to swap VSS (Vanguard FTSE all-World ex-US Small Cap) between two retirement accounts.

I described it here and here.

Subsequent to my initial 1-share experiment, I made the swap with a few hundred shares of VSS.
Thanks. I looked at those, and also found this one viewtopic.php?f=10&t=257428&newpost=4087520

I don't really understand the mechanism.

I checked some brokerages (Vang, Fid, M Edge, ETrade) and they didn't seem to have "Market on Open" and only ET had "Market on Close".
Fidelity definitely does "on the close / open" transactions. Just check the drop down box for Time in Force when setting up the trade.

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Re: How do you trade ETFs exactly like mutual funds?

Post by livesoft » Sat Oct 20, 2018 8:21 am

arf30 wrote:
Sat Oct 20, 2018 7:15 am
I'm surprised to see so many people trading at or near market close/open, especially when so many online resources recommend against it due to price fluctuations (including Vanguard).
Vanguard staff is probably just reflecting on the fact that Vanguard.com never shows anything in real-time, so Vanguard clients are at a disadvantage when it comes to information on any quote and ETF information. I think Vanguard should recommend against placing orders near market close/open and at noon, and at any time during the day.
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Re: How do you trade ETFs exactly like mutual funds?

Post by staythecourse » Sat Oct 20, 2018 8:32 am

Not an expert so hope someone will educate me on this topic, but why does it matter? ETF are priced through out the trading day IN REAL TIME. Mutual funds are priced at the closing price. So starting at the market the next day they are "worth" the same. So who cares when you sell and buy? The price is reflective of the accurate price at that time VTI is very liquid with high trading volumes so the bid/ ask spread is probably a cent.

If it was me I would be more concerned (not really though) of being out of the market the rest of the day until the mutual fund replacement was purchased after closing of the market. Then of course there is the issue of having the fund available to pay for the mutual fund replacement (T+1) but the money needs to be transferred from ML to Vanguard.

Good luck.
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Re: How do you trade ETFs exactly like mutual funds?

Post by staythecourse » Sat Oct 20, 2018 8:32 am

Not an expert so hope someone will educate me on this topic, but why does it matter? ETF are priced through out the trading day IN REAL TIME. Mutual funds are priced at the closing price. So starting at the market the next day they are "worth" the same. So who cares when you sell and buy? The price is reflective of the accurate price at that time VTI is very liquid with high trading volumes so the bid/ ask spread is probably a cent.

If it was me I would be more concerned (not really though) of being out of the market the rest of the day until the mutual fund replacement was purchased after closing of the market. Then of course there is the issue of having the fund available to pay for the mutual fund replacement (T+1) but the money needs to be transferred from ML to Vanguard.

Good luck.
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Re: How do you trade ETFs exactly like mutual funds?

Post by beyou » Sat Oct 20, 2018 8:39 am

Seems like more trouble than it's worth, churning brokerage accounts.
If you lose a basis point on a large holding, and break even on brokerage bonuses, why do this at all ?

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Re: How do you trade ETFs exactly like mutual funds?

Post by SlowMovingInvestor » Sat Oct 20, 2018 8:42 am

lilyn20 wrote:
Sat Oct 20, 2018 8:17 am
Fidelity definitely does "on the close / open" transactions. Just check the drop down box for Time in Force when setting up the trade.

Even if a brokerage doesn't explicitly have on the close/open transactions on their web site, they will allow you to place one by calling them (and wouldnt charge anything if there is no other way of placing the order). Merill Edge, for instance.

Schwab does not allow Market on Close/Open orders through their website, but does through their desktop trading software.

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Re: How do you trade ETFs exactly like mutual funds?

Post by Doc » Sat Oct 20, 2018 10:02 am

vineviz wrote:
Sat Oct 20, 2018 8:17 am
I agree. I don't tend to worry much about intraday volatility, since I consider myself to be a long-term investor, but I'd definitely avoid executing orders in the first or last 30 minutes of the trading day if I could.

For international stocks, it's also useful to keep in mind that most European markets close by 11:30 am eastern time. For someone trying to minimize both volatility and bid/ask spreads, I'd say the "sweet spot" for exchanging between US and international ETFs is probably 10:30am to 11:15am: that'd be the least chaotic time to enter your ETF orders, I think, if you were super paranoid about this kind of thing.
I do the same thing. It is especially important for international stocks.
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Re: How do you trade ETFs exactly like mutual funds?

Post by livesoft » Sat Oct 20, 2018 10:08 am

staythecourse wrote:
Sat Oct 20, 2018 8:32 am
So who cares when you sell and buy? The price is reflective of the accurate price at that time VTI is very liquid with high trading volumes so the bid/ ask spread is probably a cent.
Usually something called Price Discovery is invoked, so the price may not be accurate all the time. In the early morning, maybe folks in California are still asleep and the corporate executives who live in that region know something that the folks on Wall Street and other traders don't know. :)
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Re: How do you trade ETFs exactly like mutual funds?

Post by b0B » Sat Oct 20, 2018 4:55 pm

blevine wrote:
Sat Oct 20, 2018 8:39 am
Seems like more trouble than it's worth, churning brokerage accounts.
If you lose a basis point on a large holding, and break even on brokerage bonuses, why do this at all ?
This is exactly the issue I am thinking through. If I get a few hundred bucks bonus for moving $100k in investments, but end up in a suboptimal investing environment, the bonus is not worth it. It depends on the investor, but I would much rather use Admiral MFs at Vanguard.
lilyn20 wrote:
Sat Oct 20, 2018 8:17 am
Fidelity definitely does "on the close / open" transactions. Just check the drop down box for Time in Force when setting up the trade.
I see it now. Thanks for pointing it out.
SlowMovingInvestor wrote:
Sat Oct 20, 2018 8:42 am
Even if a brokerage doesn't explicitly have on the close/open transactions on their web site, they will allow you to place one by calling them (and wouldnt charge anything if there is no other way of placing the order). Merill Edge, for instance.

Schwab does not allow Market on Close/Open orders through their website, but does through their desktop trading software.
Thanks for the info!
arf30 wrote:
Sat Oct 20, 2018 7:15 am
I'm surprised to see so many people trading at or near market close/open, especially when so many online resources recommend against it due to price fluctuations (including Vanguard).
Right. And if I'm trying to trade an ETF so as to match the market close price of the corresponding MF, then I am seemingly forced to trade near market close, so it's not good.

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Re: How do you trade ETFs exactly like mutual funds?

Post by b0B » Sat Oct 20, 2018 4:58 pm

vineviz wrote:
Sat Oct 20, 2018 8:17 am
For international stocks, it's also useful to keep in mind that most European markets close by 11:30 am eastern time. For someone trying to minimize both volatility and bid/ask spreads, I'd say the "sweet spot" for exchanging between US and international ETFs is probably 10:30am to 11:15am: that'd be the least chaotic time to enter your ETF orders, I think, if you were super paranoid about this kind of thing.
Good point about international stocks, but this just goes to show that the scenarios in the OP should be avoided with international holdings (e.g. sell ETF buy MF, or vice versa, with definite execution and matching prices).

Remember, I'm talking about a combination of transactions, some of which involve MFs, so the goal is to somehow get the ETF trades to definitely execute and to match the MF market close prices.

The whole issue of intra-day pricing, and how fair/true they may or not be, is completely irrelevant to the topic of the OP, except as a cautionary tale of what not to do (i.e. jumping in and out of the market as prices fluctuate). If you aim to "stay the course" then on most days you do nothing, but if you have to transact while trying to avoid a net jump in or out of volatile holdings, e.g. this scenario https://www.bogleheads.org/wiki/Placing ... ed_account
then you want the buys and sells to both execute, and to match the prices, which is difficult with ETFs.

Finally, there was a suggestion that I should just do a bunch of ETF transactions very rapidly. I haven't played a video game since the early 1980's. I don't want large sums of my hard earned money put on the line depending on my decrepit rapid typing and clicking skills. I can't outclick the HFTs and I don't want to try.

I'd much rather leisurely place my MF trades, since I have literally all (trade)day to do so, and I have plenty of time to contemplate my actions.

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Re: How do you trade ETFs exactly like mutual funds?

Post by b0B » Sat Oct 20, 2018 5:00 pm

It appears that this "market-on-close" thing (that I need to look into) is the best solution, if available. Thanks to whoever suggested that.

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Re: How do you trade ETFs exactly like mutual funds?

Post by LadyGeek » Sat Oct 20, 2018 5:07 pm

Welcome!

Be sure you understand exactly the type of order you are considering. The wiki has some background info: Order

As others have stated earlier - if you are investing for the long-haul, the variation of one trading day won't make any difference.
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Re: How do you trade ETFs exactly like mutual funds?

Post by JustinR » Sat Oct 20, 2018 5:53 pm

b0B wrote:
Fri Oct 19, 2018 12:45 pm
So is there a safe way of doing this with ETFs? For example, how could I sell VTI at Merrill Edge, and buy the same ammount of VTSAX at Vanguard, so that execution is 100% certain, and the price is guaranteed to be close (a few bp is tolerable, but not 1%)?
Consider simplifying your setup, tbh. Instead of having the same funds scattered across separate accounts, you should concentrate your bonds (then international) in pre-tax, international in Roth, total stock market in taxable.
blevine wrote:
Sat Oct 20, 2018 8:39 am
Seems like more trouble than it's worth, churning brokerage accounts.
If you lose a basis point on a large holding, and break even on brokerage bonuses, why do this at all ?
b0B wrote:
Sat Oct 20, 2018 4:55 pm
blevine wrote:
Sat Oct 20, 2018 8:39 am
Seems like more trouble than it's worth, churning brokerage accounts.
If you lose a basis point on a large holding, and break even on brokerage bonuses, why do this at all ?
This is exactly the issue I am thinking through. If I get a few hundred bucks bonus for moving $100k in investments, but end up in a suboptimal investing environment, the bonus is not worth it. It depends on the investor, but I would much rather use Admiral MFs at Vanguard.
If you set up your accounts correctly, you won't have a "suboptimal investing environment." I convert mutual funds I never plan on selling to reach the brokerage bonus milestones (typically $50k, $100k, $250k, $1m, etc). The ETFs simply sit there year after year and get transferred around for brokerage bonuses. The rest you keep in MFs and continue buying only MFs.

To reiterate, ideally you never trade your brokerage bonus ETFs. They should do their job which is to sit there and get transferred every 6 months/1 yr for a new bonus.

Who cares if your exchanges aren't perfect down to the dollar when you're getting $1-2k every year for moving the same parked funds around?
Last edited by JustinR on Sat Oct 20, 2018 5:57 pm, edited 1 time in total.

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Re: How do you trade ETFs exactly like mutual funds?

Post by typical.investor » Sat Oct 20, 2018 5:54 pm

b0B wrote:
Sat Oct 20, 2018 4:58 pm

Finally, there was a suggestion that I should just do a bunch of ETF transactions very rapidly. I haven't played a video game since the early 1980's. I don't want large sums of my hard earned money put on the line depending on my decrepit rapid typing and clicking skills. I can't outclick the HFTs and I don't want to try.

I'd much rather leisurely place my MF trades, since I have literally all (trade)day to do so, and I have plenty of time to contemplate my actions.
Then I'd trade MF and not ETFs.

I don't think your mischaracterization of the suggestion to use marketable-limit-orders is helpful, and still believe it's better than MOC orders.

While you say that NAV isn't a concern, I point out the person recommending MOC orders raised the issue at that time:
carguyny wrote:
Fri Oct 19, 2018 2:23 pm
Certain brokers (.e.g. Interactive Brokers) let you place "Market at Close" orders, so it will be pretty close. However, it doesn't account for the premium/discount the ETF might be trading at.
I'll point out too that that the Toronto Stock Exchange ended MOC orders out of that concern:
There’s consensus that it’s in clients’ best interests to execute ETF and ETR transactions in the continuous trading session in which market makers can ensure that the prices quoted reflect a product’s NAV
Here's an article that reaches the same conclusion. https://www.forbes.com/sites/riabiz/201 ... b51c6766e0

It points out:
For the end-of-day quote to NAV comparison, ETF issuers collect information on ETF share bids and offers on the listing exchange market each day at 4 p.m. and compare the midpoint of the quote to that day’s NAV calculation for the ETF.

The comparisons usually show that the mid-point of the bid and offer at the close is very near the NAV on most days

Most investors do not realize that MOC transactions in ETFs are not reflected in most ETF reported premiums or discounts in any way.
While I don't know how much the funds' NAV in the ones you are trading will differ, I do know that you should look out for it.

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Re: How do you trade ETFs exactly like mutual funds?

Post by acanthurus » Sat Oct 20, 2018 6:21 pm

I thought MOC orders were heavily discouraged for ETFs:

https://www.forbes.com/sites/riabiz/201 ... 9340bd66e0

I would go with explicit MOO if I was buying in one account and selling in another so as to execute at the same price, or just pull up a level 2 order book and submit a marketable limit order during regular hours. The unfortunate truth is they will never trade exactly like a mutual fund.

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Re: How do you trade ETFs exactly like mutual funds?

Post by b0B » Sat Oct 20, 2018 6:34 pm

@JustinR, your suggestions are good for some people (and I was aware of them) but they are inapplicable to my situation (long story).

I have some advice for people here (which I'm temporarily not following, for flexibility, but I usually do, and will again in a few years) which is to not invest in taxable at all, just put it all into tax-sheltered. Although it's obviously better tax-wise, people are not necessarily in a position to follow this advice.

Many things are obvious to do if you could do them, but sometimes you just can't.

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Re: How do you trade ETFs exactly like mutual funds?

Post by grabiner » Sun Oct 21, 2018 10:55 am

arf30 wrote:
Sat Oct 20, 2018 7:15 am
I'm surprised to see so many people trading at or near market close/open, especially when so many online resources recommend against it due to price fluctuations (including Vanguard).
acanthurus wrote:
Sat Oct 20, 2018 6:21 pm
I thought MOC orders were heavily discouraged for ETFs:

https://www.forbes.com/sites/riabiz/201 ... 9340bd66e0
Whether this is safe depends on the ETF. For high-volume ETFs such as Vanguard Total Stock Market, Total Bond Market, and Total International ETFs, huge volumes trade at the open and close, and the spread is usually one cent, so you can place an order at the open or close, or a market order at any time, and get a fair price.

For lower-volume ETFs, such as VSS (Vanguard FTSE All-World Ex-US Small-Cap), you don't want to place a order that could take a potentially large spread. Your own market-on-close order, or an order placed when the market was closed to be traded at the open, could move the opening or closing price. You want to trade during market hours, and either place an order into a small spread, or place a a limit order in a larger spread so that you won't lose most of the spread if your order is accepted.

I have bought VSS several times near the market open; sometimes, there are no trades at all at the open, and the opening spread may be a dollar. If the spread is, say, $100.00-101.00 with no trades happening at the open, and you place an order for 500 shares, you would sell for $50,000 or buy for $50,500. I don't want to take that risk, so I will wait for the market to open, and for the spread to narrow, which it usually does; a typical spread for VSS is ten cents. It might happen that the spread becomes $100.00-100,10, so that the sell for $50,000 was actually a fair price, but the buy for $50,500 could have been done a few minutes later at $50.050. However, at the market open, you don't know; it could just have easily have narrowed to $100.90-101.00, or somewhere in the middle.
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Re: How do you trade ETFs exactly like mutual funds?

Post by SlowMovingInvestor » Sun Oct 21, 2018 11:19 am

grabiner wrote:
Sun Oct 21, 2018 10:55 am

For lower-volume ETFs, such as VSS (Vanguard FTSE All-World Ex-US Small-Cap), you don't want to place a order that could take a potentially large spread. Your own market-on-close order, or an order placed when the market was closed to be traded at the open, could move the opening or closing price. You want to trade during market hours, and either place an order into a small spread, or place a a limit order in a larger spread so that you won't lose most of the spread if your order is accepted.
This is very useful information. But for an MOC order, an ETF or even a stock with an MOC order will be traded at the closing price ?

I've sometimes done stuff like sell an ETF with an MOC order in one account and buy the ETF with MOC in another account (mostly when I want to 'move' a holding from an IRA to taxable or a ROTH or vice versa). In that case, there should be no spread issue because the trade takes place at the closing price, so no 'friction' ? My orders are relatively small (10k or so at most), and the ETF or stock is liquid.

I am curious how the trades are matched up at close if there is an imbalance -- I know there are algorithms that would try and pick some sort of matching price that would satisfy MOC orders, but still unsure how it works if there is a large imbalance -- do market makers have to step in then ?

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Re: How do you trade ETFs exactly like mutual funds?

Post by grabiner » Sun Oct 21, 2018 12:05 pm

SlowMovingInvestor wrote:
Sun Oct 21, 2018 11:19 am
grabiner wrote:
Sun Oct 21, 2018 10:55 am

For lower-volume ETFs, such as VSS (Vanguard FTSE All-World Ex-US Small-Cap), you don't want to place a order that could take a potentially large spread. Your own market-on-close order, or an order placed when the market was closed to be traded at the open, could move the opening or closing price. You want to trade during market hours, and either place an order into a small spread, or place a a limit order in a larger spread so that you won't lose most of the spread if your order is accepted.
This is very useful information. But for an MOC order, an ETF or even a stock with an MOC order will be traded at the closing price ?

I've sometimes done stuff like sell an ETF with an MOC order in one account and buy the ETF with MOC in another account (mostly when I want to 'move' a holding from an IRA to taxable or a ROTH or vice versa). In that case, there should be no spread issue because the trade takes place at the closing price, so no 'friction' ? My orders are relatively small (10k or so at most), and the ETF or stock is liquid.

I am curious how the trades are matched up at close if there is an imbalance -- I know there are algorithms that would try and pick some sort of matching price that would satisfy MOC orders, but still unsure how it works if there is a large imbalance -- do market makers have to step in then ?
The rules vary somewhat by exchange, but the opening and closing cross prices are usually the prices that cause the maximum number of shares to be traded. An imbalance occurs only at a particular price, as there are limit orders at many different prices; any new order can change the crossing price. Thus a market-on-close will trade at the closing price, but it may affect that closing price.

For example, suppose that the outstanding on-close orders are market orders to buy 600 shares and sell 500 shares, a limit order to buy 500 shares at $50.00, a limit order to sell 500 shares at $50.00, and a limit order to sell 500 shares at $50.10. The crossing price is $50, because this allows 1000 shares to be traded; at any higher price, there are only 600 shares to trade. If you now add a market-on-close order to buy 300 shares, this won't move the close, because only 900 shares can trade at $50.10; you will get a $50 price for your shares. But if you add a market-on-close order for 500 shares (or a limit order to buy at $50.10 or higher), it will become possible to trade 1100 shares at $50.10, so you will move the closing price and will pay $50.10 for all your shares.
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Re: How do you trade ETFs exactly like mutual funds?

Post by b0B » Sun Oct 21, 2018 4:03 pm

^ Thanks for this explanation.

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Re: How do you trade ETFs exactly like mutual funds?

Post by b0B » Fri Nov 02, 2018 1:38 pm

Here are examples of people having problems with ETFs.
viewtopic.php?f=10&t=262749
viewtopic.php?f=1&t=262939

I'm sure there are lots of them. The particular problem is when you are trying to exactly match buys and sells.

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Re: How do you trade ETFs exactly like mutual funds?

Post by tmcc » Fri Nov 02, 2018 1:53 pm

whodidntante wrote:
Fri Oct 19, 2018 8:58 pm
b0B wrote:
Fri Oct 19, 2018 12:45 pm
Certainty of execution is the crucial thing.
Mutual funds trade at next NAV, which is unknown to you until a couple of hours after the market closes. ETFs can be traded with limit orders or marketable limit orders, and you know for certain you won't get a worse price than you specified. That's a greater degree of certainty than a mutual fund can provide. Why is intra-day volatility a concern for you, while daily closing price volatility is not? Over a lifetime of investment purchases, sometimes you'll get a better price intra-day, and sometimes you won't. But it's not going to matter much.
i think this is the biggest fault of the BH mindset . intraday volatility can be enormous.

sticking your head in the sand instead of learning how to maximize entry is just silly.

my best anecdotal is in august of 2015 when i had ETF limit orders in when the flash crash occurred. it was a huge windfall in the rearview mirror. did I know it was going to happen? no! but I knew that i'd be a buyer if pricing got there... why it got there is a completely different matter. with a mutual fund, i would not have gotten those executions.

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Re: How do you trade ETFs exactly like mutual funds?

Post by indexfundfan » Fri Nov 02, 2018 4:51 pm

b0B wrote:
Fri Nov 02, 2018 1:38 pm
Here are examples of people having problems with ETFs.
viewtopic.php?f=10&t=262749
viewtopic.php?f=1&t=262939

I'm sure there are lots of them. The particular problem is when you are trying to exactly match buys and sells.
I'm surprised to see you list my example of a busted trade as a problem with ETFs.

Duplicate orders and the inability to cancel orders could have happened to mutual funds as well on a glitchy website. It will not just happen to ETF trading.
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Re: How do you trade ETFs exactly like mutual funds?

Post by b0B » Fri Nov 02, 2018 5:02 pm

With mutual funds you've got all day. With ETFs, every second counts. So ETFs are more vulnerable to glitches.

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Re: How do you trade ETFs exactly like mutual funds?

Post by vineviz » Fri Nov 02, 2018 11:34 pm

b0B wrote:
Fri Nov 02, 2018 5:02 pm
With mutual funds you've got all day. With ETFs, every second counts. So ETFs are more vulnerable to glitches.
I don’t think there’s any evidence supporting this claim.

However, because an ETF transaction is more immediate and transparent than a mutual fund transaction I could see how any glitch that DID occur would be more readily observable.
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