why are there so many ETF prices? By Vanguard

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Topic Author
arcticpineapplecorp.
Posts: 6407
Joined: Tue Mar 06, 2012 9:22 pm

why are there so many ETF prices? By Vanguard

Post by arcticpineapplecorp. »

learned something new today...the "marketable limit order"
source: https://investornews.vanguard/why-are-t ... 21:101:ETF
Market orders prioritize speed (how quickly your trade is completed) over the specific price you pay or receive for that trade. With a market order, you’ll get the best price available at that moment.

Limit orders prioritize price over speed. With limit orders, you set the maximum you’re willing to pay when buying shares, or the minimum you’re willing to accept in a sale, giving you the greatest degree of price protection.

Want a happy medium? Try a “marketable” limit order, which leverages the bid or ask price: When buying shares, set your limit at or slightly above the ask price. When selling shares, set the limit at or slightly below the bid price. This combines a degree of price control with a higher likelihood you’ll meet the limits and complete your trade.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
senex
Posts: 622
Joined: Wed Dec 13, 2017 4:38 pm

Re: why are there so many ETF prices? By Vanguard

Post by senex »

arcticpineapplecorp. wrote: Fri Mar 22, 2019 4:30 pm learned something new today...the "marketable limit order"
Some people (including me) think that market orders should be abolished in favor of this method. A market order means “fill me at the best price available when my order arrives, regardless of how outrageous that price is or how inconsistent it is with prices one nanosecond earlier.” Almost no one wants that behavior ever. Market orders are reckless. Always specify a limit price, even if it’s a marketable one. There is no downside and lots of upside.
User avatar
jeffyscott
Posts: 9174
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: why are there so many ETF prices? By Vanguard

Post by jeffyscott »

If only there were a way that one could buy a basket of securities and be guaranteed that they will pay a fair price, let's call it NAV. Perhaps with limited trading, say once per day, with all orders executed based on closing prices for the day.

An innovation such as this would free small investors from the need to spend their time contemplating things like order pricing strategies.

:P
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
EddyB
Posts: 1468
Joined: Fri May 24, 2013 3:43 pm

Re: why are there so many ETF prices? By Vanguard

Post by EddyB »

jeffyscott wrote: Sat Mar 23, 2019 8:38 am If only there were a way that one could buy a basket of securities and be guaranteed that they will pay a fair price, let's call it NAV. Perhaps with limited trading, say once per day, with all orders executed based on closing prices for the day.

An innovation such as this would free small investors from the need to spend their time contemplating things like order pricing strategies.

:P
Sounds like it would end up being more expensive to administer than an equivalent ETF.
HEDGEFUNDIE
Posts: 4801
Joined: Sun Oct 22, 2017 2:06 pm

Re: why are there so many ETF prices? By Vanguard

Post by HEDGEFUNDIE »

jeffyscott wrote: Sat Mar 23, 2019 8:38 am If only there were a way that one could buy a basket of securities and be guaranteed that they will pay a fair price, let's call it NAV. Perhaps with limited trading, say once per day, with all orders executed based on closing prices for the day.

An innovation such as this would free small investors from the need to spend their time contemplating things like order pricing strategies.

:P
A fair price at the end of the day may not be the same as a fair price intraday. What if prices rise from morning to afternoon?
HEDGEFUNDIE
Posts: 4801
Joined: Sun Oct 22, 2017 2:06 pm

Re: why are there so many ETF prices? By Vanguard

Post by HEDGEFUNDIE »

senex wrote: Fri Mar 22, 2019 5:38 pm
arcticpineapplecorp. wrote: Fri Mar 22, 2019 4:30 pm learned something new today...the "marketable limit order"
Some people (including me) think that market orders should be abolished in favor of this method. A market order means “fill me at the best price available when my order arrives, regardless of how outrageous that price is or how inconsistent it is with prices one nanosecond earlier.” Almost no one wants that behavior ever. Market orders are reckless. Always specify a limit price, even if it’s a marketable one. There is no downside and lots of upside.
This is nonsense. Limit orders are betting, pure and simple.
alex_686
Posts: 7047
Joined: Mon Feb 09, 2015 2:39 pm

Re: why are there so many ETF prices? By Vanguard

Post by alex_686 »

jeffyscott wrote: Sat Mar 23, 2019 8:38 am If only there were a way that one could buy a basket of securities and be guaranteed that they will pay a fair price, let's call it NAV. Perhaps with limited trading, say once per day, with all orders executed based on closing prices for the day.

An innovation such as this would free small investors from the need to spend their time contemplating things like order pricing strategies.

:P
As somebody who has worked in mutual fund accounting and has actually struck a NAV and has done fund purchase and redemptions, I wish this could br true. But I have actually seen the sausage been made. The critical feature of mutual funfss us that the sausage is made behind closed doors instead of out in the open.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Gufomel
Posts: 556
Joined: Sat Feb 14, 2015 9:52 pm

Re: why are there so many ETF prices? By Vanguard

Post by Gufomel »

senex wrote: Fri Mar 22, 2019 5:38 pm
arcticpineapplecorp. wrote: Fri Mar 22, 2019 4:30 pm learned something new today...the "marketable limit order"
Some people (including me) think that market orders should be abolished in favor of this method. A market order means “fill me at the best price available when my order arrives, regardless of how outrageous that price is or how inconsistent it is with prices one nanosecond earlier.” Almost no one wants that behavior ever. Market orders are reckless. Always specify a limit price, even if it’s a marketable one. There is no downside and lots of upside.
There must be some degree of downside?

Let’s say you’re wanting to buy an ETF share. Ask price is $100. You place a limit order at $100.01. But in the time you take to place the order, the ask rises to $100.02 and continues to rise. It continues to rise to $100.10. You either decide to wait and hope it falls back to $100.01 and fills your order, or you cancel your order and replace at $100.11, rinse and repeat.

In a very liquid ETF, I don’t see how limit orders aren’t more of a bet than market orders.
senex
Posts: 622
Joined: Wed Dec 13, 2017 4:38 pm

Re: why are there so many ETF prices? By Vanguard

Post by senex »

HEDGEFUNDIE wrote: Sat Mar 23, 2019 9:17 am
senex wrote: Fri Mar 22, 2019 5:38 pm Market orders are reckless. Always specify a limit price, even if it’s a marketable one. There is no downside and lots of upside.
This is nonsense. Limit orders are betting, pure and simple.
I think you got it backwards. Market orders are betting.

During the flash crash some people sold AAPL for $0.01 because they had sent market orders that happened to hit at *just* the wrong moment.

Limit orders allow you to control your risk. Market orders produce unlimited risk (well, limited by $0 when selling and by all the money in your account when buying).
senex
Posts: 622
Joined: Wed Dec 13, 2017 4:38 pm

Re: why are there so many ETF prices? By Vanguard

Post by senex »

Gufomel wrote: Sat Mar 23, 2019 9:32 am There must be some degree of downside?

Let’s say you’re wanting to buy an ETF share. Ask price is $100. You place a limit order at $100.01. But in the time you take to place the order, the ask rises to $100.02 and continues to rise. It continues to rise to $100.10. You either decide to wait and hope it falls back to $100.01 and fills your order, or you cancel your order and replace at $100.11, rinse and repeat.

In a very liquid ETF, I don’t see how limit orders aren’t more of a bet than market orders.
In your example, if you would have been satisfied with a fill at $100.11, you should have set that as your original limit price.

A market order is *always* a bigger bet, because a market order is simply a limit order with a limit price of $999,999.99 when buying or $0.01 when selling. I personally would not place a limit order for such prices. Would you? That's exactly what you're doing when you place a market order.

I would place a limit order with a prudent limit with which I'm comfortable. Say, if the stock is trading at $20.00 x $20.01, maybe I put $21 or $22 (based on prior close, historic volatility, etc).
HEDGEFUNDIE
Posts: 4801
Joined: Sun Oct 22, 2017 2:06 pm

Re: why are there so many ETF prices? By Vanguard

Post by HEDGEFUNDIE »

senex wrote: Sat Mar 23, 2019 10:26 pm
Gufomel wrote: Sat Mar 23, 2019 9:32 am There must be some degree of downside?

Let’s say you’re wanting to buy an ETF share. Ask price is $100. You place a limit order at $100.01. But in the time you take to place the order, the ask rises to $100.02 and continues to rise. It continues to rise to $100.10. You either decide to wait and hope it falls back to $100.01 and fills your order, or you cancel your order and replace at $100.11, rinse and repeat.

In a very liquid ETF, I don’t see how limit orders aren’t more of a bet than market orders.
In your example, if you would have been satisfied with a fill at $100.11, you should have set that as your original limit price.

A market order is *always* a bigger bet, because a market order is simply a limit order with a limit price of $999,999.99 when buying or $0.01 when selling. I personally would not place a limit order for such prices. Would you? That's exactly what you're doing when you place a market order.

I would place a limit order with a prudent limit with which I'm comfortable. Say, if the stock is trading at $20.00 x $20.01, maybe I put $21 or $22 (based on prior close, historic volatility, etc).
1. Risk with limit order: the market moves against you and your limit price turns out to be suboptimal
2. Risk with market order: once-every-few-years flash crash

#1 is clearly the more prevalent risk
User avatar
vineviz
Posts: 7982
Joined: Tue May 15, 2018 1:55 pm

Re: why are there so many ETF prices? By Vanguard

Post by vineviz »

senex wrote: Sat Mar 23, 2019 10:23 pm

During the flash crash some people sold AAPL for $0.01 because they had sent market orders that happened to hit at *just* the wrong moment.
Never happened.

Don’t build your investment strategy around urban legends.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
User avatar
tooluser
Posts: 705
Joined: Sat Oct 01, 2011 7:04 pm

Re: why are there so many ETF prices? By Vanguard

Post by tooluser »

HEDGEFUNDIE wrote: Sat Mar 23, 2019 10:30 pm
1. Risk with limit order: the market moves against you and your limit price turns out to be suboptimal
2. Risk with market order: once-every-few-years flash crash

#1 is clearly the more prevalent risk
For #1 one merely resets the limit order at a few pennies higher or lower and is likely done. The trade still happens, and no one is impoverished from the transaction. If the market is moving so fast that one cannot make a reasonable adjustment, then perhaps one should not be making a hasty decision, nor delegating that decision to others.
The discovery of America, and that of a passage to the East Indies by the Cape of Good Hope, are the two greatest and most important events recorded in the history of mankind. -- Adam Smith, 1776
senex
Posts: 622
Joined: Wed Dec 13, 2017 4:38 pm

Re: why are there so many ETF prices? By Vanguard

Post by senex »

HEDGEFUNDIE wrote: Sat Mar 23, 2019 10:30 pm
1. Risk with limit order: the market moves against you and your limit price turns out to be suboptimal
2. Risk with market order: once-every-few-years flash crash

#1 is clearly the more prevalent risk
Hedgefundie, I enjoy your contributions here. You have a lot of interesting and clear thoughts. In this case I think you're missing something.

If your name indicates your occupation, I suspect you haven't worked in the market microstructure or clearing side of the business. Discontinuities in pricing (your #2) are more common than you realize. Also, your #1 is a non-problem -- it is easily mitigated by setting your limit price aggressively (I often place it several dollars into the book).

Market orders can be abolished with no loss of generality because a market order is equivalent to a limit order with a very very high price (or very low if selling). Few retail investors actually want that behavior -- they aren't willing to buy AAPL at $50,000 a share or sell it at $0.01. In my ideal limit-only world, everyone is free to enter $999,999 as his limit price (you have no less freedom!) -- but would you? Why would you be willing to pay $50,000 for a share of AAPL? It's peculiar to think that placing such an order *reduces* your risk, compared to, say, placing with a limit price of $300.

If you read Nasdaq's OUCH spec (their order entry system) ( https://nasdaqtrader.com/content/techni ... UCH4.2.pdf ) you'll see that it doesn't have the concept of a market order during regular hours. You must specify a limit price. Nasdaq has the best technology of all US markets. They require a limit price because it is so prudent. Everyone has a limit (either psychological or monetary). A robustly engineered system recognizes that.

I do agree that market orders *usually* work as expected, because US liquidity and market structure is pretty darn good. But when they fail, they fail badly. A limit order allows you to balance your risks ("risk of getting filled at a ridiculous price" vs "risk of missing out") in whatever way you like. That's why it's the optimal solution.
pdavi21
Posts: 1296
Joined: Sat Jan 30, 2016 4:04 pm

Re: why are there so many ETF prices? By Vanguard

Post by pdavi21 »

If you are trading enough at once for it to matter, you aren't a Boglehead...maybe while rebalancing.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking
typical.investor
Posts: 2319
Joined: Mon Jun 11, 2018 3:17 am

Re: why are there so many ETF prices? By Vanguard

Post by typical.investor »

HEDGEFUNDIE wrote: Sat Mar 23, 2019 10:30 pm
senex wrote: Sat Mar 23, 2019 10:26 pm
Gufomel wrote: Sat Mar 23, 2019 9:32 am There must be some degree of downside?

Let’s say you’re wanting to buy an ETF share. Ask price is $100. You place a limit order at $100.01. But in the time you take to place the order, the ask rises to $100.02 and continues to rise. It continues to rise to $100.10. You either decide to wait and hope it falls back to $100.01 and fills your order, or you cancel your order and replace at $100.11, rinse and repeat.

In a very liquid ETF, I don’t see how limit orders aren’t more of a bet than market orders.
In your example, if you would have been satisfied with a fill at $100.11, you should have set that as your original limit price.

A market order is *always* a bigger bet, because a market order is simply a limit order with a limit price of $999,999.99 when buying or $0.01 when selling. I personally would not place a limit order for such prices. Would you? That's exactly what you're doing when you place a market order.

I would place a limit order with a prudent limit with which I'm comfortable. Say, if the stock is trading at $20.00 x $20.01, maybe I put $21 or $22 (based on prior close, historic volatility, etc).
1. Risk with limit order: the market moves against you and your limit price turns out to be suboptimal
2. Risk with market order: once-every-few-years flash crash

#1 is clearly the more prevalent risk
You don't understand how to use a marketable limit order. #1 is not a risk at all.

If I want to sell a share of UPRO and the current bid is $47.63, I place a limit for something beyond what the market will move in the 2 or three seconds it will take me to place the order. So say I place my limit at $47.33.

If the market is totally wonk and the order hasn't gone through at $47.33 (or hopefully higher because my broker will give me the best price they can get) by the time I click to view the trade after putting it in, I can re-evaluate. If it's from a flash crash and the highest bid is $20, I won't replace it because I know something is wrong.

So basically I am getting the market price at the time my order goes through plus a safety net. If the only available bid is ridiculous, the sell won't go through.

I am not trading UPRO yet so don't know how much it moves in 2-3 seconds. Surely a $47.33 limit would execute though. It only seems to move about $.30 over 5 minutes at most (and we are talking three seconds here), but again even if it exceeded that, I would notice the trade hasn't gone immediately through and can re-evaluate if I still want to sell.
Last edited by typical.investor on Sun Mar 24, 2019 12:17 am, edited 2 times in total.
senex
Posts: 622
Joined: Wed Dec 13, 2017 4:38 pm

Re: why are there so many ETF prices? By Vanguard

Post by senex »

vineviz wrote: Sat Mar 23, 2019 11:11 pm
senex wrote: Sat Mar 23, 2019 10:23 pm During the flash crash some people sold AAPL for $0.01 because they had sent market orders that happened to hit at *just* the wrong moment.
Never happened.
Don’t build your investment strategy around urban legends.
I got it backwards -- someone bought AAPL at $99,999.99. It was ACN that someone sold at $0.01. My memory isn't perfect after 9 years.

(ACN at 14:47:54 on Nasdaq & CBSX; AAPL at 15:29:30 on ARCA)

Those trades were broken hours later, but their occurrence illustrates two important points:
(a) the trade did happen, which illustrates the inherent recklessness of a market order (i.e. acting reckless and counting on a regulator to cancel your trade later)
(b) dislocations of a less severe magnitude were not broken, leaving some very unhappy customers

If you're not in the industry, you're probably ignorant about how trades & trade breaks work, and maybe that's why you think it's an urban legend.
Last edited by senex on Sun Mar 24, 2019 12:19 am, edited 1 time in total.
DonIce
Posts: 1126
Joined: Thu Feb 21, 2019 6:44 pm

Re: why are there so many ETF prices? By Vanguard

Post by DonIce »

There's never any harm in using a limit order where the limit is far enough away so your order is still guaranteed to be instantly filled under normal market conditions. It protects you against the 1 in a million chance that there happens to be a flash crash that minute.
tigerdoc93
Posts: 216
Joined: Wed Oct 07, 2015 8:50 pm

Re: why are there so many ETF prices? By Vanguard

Post by tigerdoc93 »

I’ve used limit orders and market orders many times and have never had an issue.
typical.investor
Posts: 2319
Joined: Mon Jun 11, 2018 3:17 am

Re: why are there so many ETF prices? By Vanguard

Post by typical.investor »

tigerdoc93 wrote: Sun Mar 24, 2019 2:37 am I’ve used limit orders and market orders many times and have never had an issue.
And some people have driven many times without a seatbelt and never had an issue, but the fact remains marketable limit orders will almost always execute like a market order and when they don’t can help you in a system crash.

It’s your life and your money, take your chances if the extra few seconds aren’t worth it in your opinion. Just saying best practice that’s all.
JustinR
Posts: 1382
Joined: Tue Apr 27, 2010 11:43 pm

Re: why are there so many ETF prices? By Vanguard

Post by JustinR »

I don't get it. How are limit orders risky in any way?

You set the price you want to buy/sell at and that's what you get if it's filled. Am I missing something?
User avatar
vineviz
Posts: 7982
Joined: Tue May 15, 2018 1:55 pm

Re: why are there so many ETF prices? By Vanguard

Post by vineviz »

senex wrote: Sun Mar 24, 2019 12:01 am
vineviz wrote: Sat Mar 23, 2019 11:11 pm
senex wrote: Sat Mar 23, 2019 10:23 pm During the flash crash some people sold AAPL for $0.01 because they had sent market orders that happened to hit at *just* the wrong moment.
Never happened.
Don’t build your investment strategy around urban legends.
I got it backwards -- someone bought AAPL at $99,999.99. It was ACN that someone sold at $0.01. My memory isn't perfect after 9 years.

(ACN at 14:47:54 on Nasdaq & CBSX; AAPL at 15:29:30 on ARCA)

Those trades were broken hours later, but their occurrence illustrates two important points:
(a) the trade did happen, which illustrates the inherent recklessness of a market order (i.e. acting reckless and counting on a regulator to cancel your trade later)
(b) dislocations of a less severe magnitude were not broken, leaving some very unhappy customers

If you're not in the industry, you're probably ignorant about how trades & trade breaks work, and maybe that's why you think it's an urban legend.
I am in the industry, though I don't think I'd have needed to be to know that you were wrong.

And if you're in the industry then you know that assets are actually bought or sold until the trade settles, making threat of an adverse market order both less severe and less frequent for the retail investor.

I happen to be a fan of marketable limit orders for retail investors, especially when purchasing securities, but I think it's entirely possible to express such a preference without spreading FUD based on illusory bogeymen.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
User avatar
vineviz
Posts: 7982
Joined: Tue May 15, 2018 1:55 pm

Re: why are there so many ETF prices? By Vanguard

Post by vineviz »

JustinR wrote: Sun Mar 24, 2019 5:01 am I don't get it. How are limit orders risky in any way?

You set the price you want to buy/sell at and that's what you get if it's filled. Am I missing something?
The risk of a limit order is that it never executes at all.

The risk of a market order is that it executes at a price you don't want.

It's likely that one of those risks is more acceptable to you on any particular trade.

Just remember that the market doesn't care what price you want: when you enter a limit order to sell, you should do so fully prepared to either never sell or to sell at a lower price later than you could have received when you first entered the order.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
senex
Posts: 622
Joined: Wed Dec 13, 2017 4:38 pm

Re: why are there so many ETF prices? By Vanguard

Post by senex »

vineviz wrote: Sun Mar 24, 2019 7:27 am And if you're in the industry then you know that assets are actually bought or sold until the trade settles, making threat of an adverse market order both less severe and less frequent for the retail investor.

I happen to be a fan of marketable limit orders for retail investors, especially when purchasing securities, but I think it's entirely possible to express such a preference without spreading FUD based on illusory bogeymen.
Ok, I see the problem: the multiple overloaded uses of the word "trade." This gets a bit philosophical (did a trade that was broken ever really occur?)

My position is yes: the trades were printed to the tape, were confirmed to participants, and later were broken (i.e. did not settle). That's why it's called a "trade break." If the trades didn't occur, what exactly are they "breaking" with a trade break? Your position is no, because money never traded hands.

So let's get rid of the problematic word. Since "trade" is ambiguous, let's switch to "agreed to automatic settlement absent human intervention." My point (a) becomes:

"the agreement to automatically settle absent human intervention did happen, which illustrates the inherent recklessness of a market order (i.e. acting reckless and counting on a regulator to cancel your agreement)"

Which is true and quite important! (my point (b) is unaffected & also still important)

Trading is fast & automated and trade breaking is slow & manual. We currently have a situation akin to the 737-MAX, in which the automated parts can do something reckless, and typically a human will manually correct it after-the-fact. That setup worked fine for years, until it didn't work.

I'm saying we should fix the automated parts of the trading system that are known to act recklessly. Let's just make the simple engineering improvement.

You keep saying things like "FUD" or "illusory." People got OUCH Executed messages at $0.01 and $99,999. They couldn't even tell if they were long or short for hours, until a person made a manual decision. That is scary! Those things really happened. If you understand them, they should scare you.
Last edited by senex on Sun Mar 24, 2019 9:44 am, edited 1 time in total.
jyoung
Posts: 110
Joined: Mon Jan 21, 2019 1:26 pm
Location: Houston, TX

Re: why are there so many ETF prices? By Vanguard

Post by jyoung »

I know this is a big part of why so many people love "trading" ETFs, but this whole thing is where investing loses all interest for me and becomes more hassle than it's worth. Give me the end of day NAV even if I have to pay a few pennies extra (or make a few just depending on the day), or I'll just buy Fidelity Zero funds if it's that big of a deal to me. I think I may just be getting old and lazy though.
columbia
Posts: 2986
Joined: Tue Aug 27, 2013 5:30 am

Re: why are there so many ETF prices? By Vanguard

Post by columbia »

I’ve never owned an ETF, because of the inability to automate purchases through Vanguard.

What are the stats on the trading frequency of them compared to comparable mutual funds?
alex_686
Posts: 7047
Joined: Mon Feb 09, 2015 2:39 pm

Re: why are there so many ETF prices? By Vanguard

Post by alex_686 »

columbia wrote: Sun Mar 24, 2019 8:26 am I’ve never owned an ETF, because of the inability to automate purchases through Vanguard.

What are the stats on the trading frequency of them compared to comparable mutual funds?
Much, much higher- but you are comparing apples to oranges. Creation, redemption, and ensuring that the traded NAV us close to the underlying value of the fund is outsourced to high frequency traders. That being said, the high tading has a low to positive impact on long term holders of tge ETF.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
User avatar
jeffyscott
Posts: 9174
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: why are there so many ETF prices? By Vanguard

Post by jeffyscott »

jyoung wrote: Sun Mar 24, 2019 8:17 amI know this is a big part of why so many people love "trading" ETFs, but this whole thing is where investing loses all interest for me and becomes more hassle than it's worth. Give me the end of day NAV even if I have to pay a few pennies extra (or make a few just depending on the day), or I'll just buy Fidelity Zero funds if it's that big of a deal to me. I think I may just be getting old and lazy though.
:sharebeer

Also at Schwab, there is no cost difference between their index mutual funds and ETFs.

I do now pay a few extra bp in a small taxable account at Vanguard, who I chose for that specifically because the tax efficiency of Vanguard index mutual funds allowed me to avoid feeling that I should go with ETFs in taxable (IOW, thanks to the special design of Vanguard ETFs, I get to avoid having to use ETFs :) )

We also pay a bit extra for having Vanguard mutual funds in a Roth.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
typical.investor
Posts: 2319
Joined: Mon Jun 11, 2018 3:17 am

Re: why are there so many ETF prices? By Vanguard

Post by typical.investor »

vineviz wrote: Sun Mar 24, 2019 7:27 am
senex wrote: Sun Mar 24, 2019 12:01 am
vineviz wrote: Sat Mar 23, 2019 11:11 pm
senex wrote: Sat Mar 23, 2019 10:23 pm During the flash crash some people sold AAPL for $0.01 because they had sent market orders that happened to hit at *just* the wrong moment.
Never happened.
Don’t build your investment strategy around urban legends.
I got it backwards -- someone bought AAPL at $99,999.99. It was ACN that someone sold at $0.01. My memory isn't perfect after 9 years.

(ACN at 14:47:54 on Nasdaq & CBSX; AAPL at 15:29:30 on ARCA)

Those trades were broken hours later, but their occurrence illustrates two important points:
(a) the trade did happen, which illustrates the inherent recklessness of a market order (i.e. acting reckless and counting on a regulator to cancel your trade later)
(b) dislocations of a less severe magnitude were not broken, leaving some very unhappy customers

If you're not in the industry, you're probably ignorant about how trades & trade breaks work, and maybe that's why you think it's an urban legend.
I am in the industry, though I don't think I'd have needed to be to know that you were wrong.

And if you're in the industry then you know that assets are actually bought or sold until the trade settles, making threat of an adverse market order both less severe and less frequent for the retail investor.

I happen to be a fan of marketable limit orders for retail investors, especially when purchasing securities, but I think it's entirely possible to express such a preference without spreading FUD based on illusory bogeymen.
Again, simply make the limit order marketable (executeable with a little room to cover movement in the next four seconds or so) and you’ll not have the risk of the trade not executing.

Yeah crossing the street is risky if you don’t look out. Doesn’t have to be though.
User avatar
vineviz
Posts: 7982
Joined: Tue May 15, 2018 1:55 pm

Re: why are there so many ETF prices? By Vanguard

Post by vineviz »

senex wrote: Sun Mar 24, 2019 8:10 am I'm saying we should fix the automated parts of the trading system that are known to act recklessly. Let's just make the simple engineering improvement.
It's beyond the scope of this thread, but can we acknowledge that some engineering improvements have already been made that were specifically designed to prevent situations like the one you illustrated earlier?

The Limit Up-Limit Down Rule for individual stocks and ETFs, for instance, automatically pauses trading if a stock or ETF moves more than 10% in five minutes. Prohibitions on bid/ask prices being entered too far away from recent trades (e.g. $0.01 and $99,999 being entered as "placeholder" prices in order books) have also been enacted.

Price movements are always a risk for a market order, and I agree that people should be aware of that risk. I think we can make that case without exaggerating either the frequency or magnitude of the risk.

Entering a coherent marketable limit order only takes a few moments longer than entering a market order, which is why I virtually always use marketable limit orders on my purchases and often use them on my sales. But it's entirely probably that a typical retail investor (as opposed to trader) could buy and sell ETFs like VOO, EDV, BND, and VTI for decades without it having any measurable impact on execution. And in the extremely rare cases when it DID have an impact, it's more likely to cost the investor money than not.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
senex
Posts: 622
Joined: Wed Dec 13, 2017 4:38 pm

Re: why are there so many ETF prices? By Vanguard

Post by senex »

vineviz wrote: Sun Mar 24, 2019 10:12 am It's beyond the scope of this thread, but can we acknowledge that some engineering improvements have already been made that were specifically designed to prevent situations like the one you illustrated earlier?
Yes, those are excellent points. Market orders aren't nearly as scary now as they used to be.

Thanks for the vigorous debate -- it's good to stay sharp. I apologize for any rancor. Cheers.
User avatar
grabiner
Advisory Board
Posts: 28198
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: why are there so many ETF prices? By Vanguard

Post by grabiner »

Gufomel wrote: Sat Mar 23, 2019 9:32 am
senex wrote: Fri Mar 22, 2019 5:38 pm
arcticpineapplecorp. wrote: Fri Mar 22, 2019 4:30 pm learned something new today...the "marketable limit order"
Some people (including me) think that market orders should be abolished in favor of this method. A market order means “fill me at the best price available when my order arrives, regardless of how outrageous that price is or how inconsistent it is with prices one nanosecond earlier.” Almost no one wants that behavior ever. Market orders are reckless. Always specify a limit price, even if it’s a marketable one. There is no downside and lots of upside.
There must be some degree of downside?

Let’s say you’re wanting to buy an ETF share. Ask price is $100. You place a limit order at $100.01. But in the time you take to place the order, the ask rises to $100.02 and continues to rise. It continues to rise to $100.10. You either decide to wait and hope it falls back to $100.01 and fills your order, or you cancel your order and replace at $100.11, rinse and repeat.

In a very liquid ETF, I don’t see how limit orders aren’t more of a bet than market orders.
The risk with market orders is that the market price might briefly be anomalous. In I bought VSS; spread has been consistently very small, from when I first bought VSS, the spread on VSS was six cents almost all morning, but a market order at the wrong time would have cost me $2 per share. A marketable limit order placed at the same time would not have filled, but could have been replaced with another marketable limit order one or two cents higher. The image is no longer available, but someone else posted an intra-day chart on that thread showing that one buyer did overpay by $2 a few days later.
Wiki David Grabiner
Gufomel
Posts: 556
Joined: Sat Feb 14, 2015 9:52 pm

Re: why are there so many ETF prices? By Vanguard

Post by Gufomel »

grabiner wrote: Sun Mar 24, 2019 9:52 pm
Gufomel wrote: Sat Mar 23, 2019 9:32 am
senex wrote: Fri Mar 22, 2019 5:38 pm
arcticpineapplecorp. wrote: Fri Mar 22, 2019 4:30 pm learned something new today...the "marketable limit order"
Some people (including me) think that market orders should be abolished in favor of this method. A market order means “fill me at the best price available when my order arrives, regardless of how outrageous that price is or how inconsistent it is with prices one nanosecond earlier.” Almost no one wants that behavior ever. Market orders are reckless. Always specify a limit price, even if it’s a marketable one. There is no downside and lots of upside.
There must be some degree of downside?

Let’s say you’re wanting to buy an ETF share. Ask price is $100. You place a limit order at $100.01. But in the time you take to place the order, the ask rises to $100.02 and continues to rise. It continues to rise to $100.10. You either decide to wait and hope it falls back to $100.01 and fills your order, or you cancel your order and replace at $100.11, rinse and repeat.

In a very liquid ETF, I don’t see how limit orders aren’t more of a bet than market orders.
The risk with market orders is that the market price might briefly be anomalous. In I bought VSS; spread has been consistently very small, from when I first bought VSS, the spread on VSS was six cents almost all morning, but a market order at the wrong time would have cost me $2 per share. A marketable limit order placed at the same time would not have filled, but could have been replaced with another marketable limit order one or two cents higher. The image is no longer available, but someone else posted an intra-day chart on that thread showing that one buyer did overpay by $2 a few days later.
Interesting. Well that’s good to know. I was not aware that even ETFs that are fairly liquid could have such adverse split-second swings.

Regarding that screenshot that someone posted in the link you shared, where did that screenshot come from where they were able to see that someone overpaid $2? I see it’s on yahoo, but I’ve never seen a screen where you can see what individual traders paid. Or was there actually a $2 spike in the posted stock price for a few seconds?
User avatar
grabiner
Advisory Board
Posts: 28198
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: why are there so many ETF prices? By Vanguard

Post by grabiner »

Gufomel wrote: Mon Mar 25, 2019 1:32 pm
grabiner wrote: Sun Mar 24, 2019 9:52 pm The image is no longer available, but someone else posted an intra-day chart on that thread showing that one buyer did overpay by $2 a few days later.
Interesting. Well that’s good to know. I was not aware that even ETFs that are fairly liquid could have such adverse split-second swings.

Regarding that screenshot that someone posted in the link you shared, where did that screenshot come from where they were able to see that someone overpaid $2? I see it’s on yahoo, but I’ve never seen a screen where you can see what individual traders paid. Or was there actually a $2 spike in the posted stock price for a few seconds?
There was a spike in the posted stock price. The stock trades all day were around $52, except for one trade at $54.80. And as I posted in the thread, the same thing would have happened to me if I had placed a market order at the wrong time.
Wiki David Grabiner
Post Reply