aj76er wrote: ↑
Fri Feb 15, 2019 7:24 pm
FIREmeup wrote: ↑
Fri Feb 15, 2019 5:14 pm
That being said I wouldn't buy or sell these ETNs
ETFs without a limit price, like any stock because a large order can execute at weird prices but then get back to equilibrium within a half second.
This may be a valid reason to avoid M1 and use a discount brokerage like Fidelity or Schwab that allows you to trade these ETFs directly. I believe M1 executes all it's outstanding trades one day per week (starting at 9am CST) and then pushes them throughout the course of the day. In order to get fast enough execution, they are likely doing simple market orders.
I'm no M1 Finance evangelist although I am using M1 for this trade simply because I was 100% Vanguard and Vanguard doesn't allow levered ETFs. Also with fractional shares and free trading commissions, I won't have any cash drag (albeit minimal) and can decide to rebalance as often as I wish. I don't particularly like their website as it's designed to hide as much of the complexity from you as it can.
I just wanted to point out that M1 Finance assuredly does not do market orders. It also does not do all trades one day per week. It's one trading window per day (10-11 ET). They likely aggregate all their orders across all their user accounts, net those orders against each other, and then execute the remainders for each security in the open market over that 1 hr period. So if they have orders to buy 30k UPRO and sell 22k UPRO (those orders came in from their users since the end of last trading window), they'll go buy 8k UPRO and then transfer the 22k UPRO from the sellers to the buyers along with the 8k they bought in the open market. Both buyers and sellers will both buy and sell UPRO at whatever price M1 was able to achieve in buying those 8k shares. No sense in both buying 30k and selling 22k and paying 2 spreads (along with exchange costs, etc.). This netting reduces market impact substantially.
Furthermore, within that 1 hour period they'll use any number of algorithms to get you a representative price of that 1 hr period (VWAP, TWAP, participation %, etc.). I'm sure they execute on a variety of exchanges (lit, dark, ATSs, etc.) to avoid tipping their hand on what they're trying to do. If they do happen to have large orders for a given security (single stock or ETF), they'll call a variety of trading desks to ask for a 2-sided quote for X number of shares (again so as to not tip off whether they're buying or selling). This is a very competitive market so the trading desks that M1 Finance call will give very aggressive prices to win the business. If the market is .10 x .11 with 50k showing at the inside and M1 Finance (or any big broker/dealer) needs to transact 200k, they'll call up and say give me a 2-sided quote for 200k and the trading desks at the banks will respond back with something like .08 x .13. It would be up to M1 Finance to think whether they could transact in the open market themselves and get a better price than selling at .08 or buying at .13 when 50k is showing at both .10 and .11.
Understand that there is zero chance you're getting a better price than M1 Finance. Now you might get a better price because you happened to buy/sell at 9:58 or 10:38 or 2:19 and that price was lower/higher than the 1-hr representative price they achieved, but that's just chance. These are sophisticated trading operations behind these companies. I'll also point out that Vanguard, Fidelity, Schwab, etc., work much the same way when they're buying/selling the stock they need for inflows/outflows to their various mutual funds.
My worry about M1 Finance is the commingling of funds. Somewhat similar to MF Global MF Global Wikipedia
. It doesn't seem like M1 Finance is even in the same business as MF Global but since I don't have anything to go on other than what M1 Finance tells me how they operate, there's always that chance that they'll eventually use customer's money for collateral as something else (they're not supposed to do that) and then when that something else comes due, M1 Finance customers become aggrieved M1 Finance creditors.