Does Placing Order Before Market Open Matter for High Volume ETFs Like VTI?

[Do_Nothing]

If one is placing orders biweekly for VTI before market open, using market orders, and getting the exact price at market open, is this somehow less favorable than waiting to 10:00AM EST? I ask to see whether I should continue my practice of placing orders around 5AM before market open using market orders, or switch my new investments over to Fidelity which places automatic ETF investments at 10AM EST. I can't see where my returns have been impacted by my current practice at all.

I know the general rule with ETFs is to not trade at market open or 30 min before close, but does that really apply to high volume ETFs? I get that there is a lot of theory and evidence against trading at the open, but in actuality those it really make a difference for VTI and other ETFs like it?

Sure, there may be a little volatility but that could cut either way and it's a roll of the dice if you benefit or lose, which is effectively noise in the long run. Or am I looking at this incorrectly?

[whodidntante]

There is high volatility in the stock market at market open, so yes, it impacts VTI. However, for a small purchase every two weeks and an investment that will be held most of your remaining life, intraday volatility of a VTI is not a serious concern. I hope you aren't somehow submitting market orders for execution in the pre-market though.

[Do_Nothing]

There is high volatility in the stock market at market open, so yes, it impacts VTI. However, for a small purchase every two weeks and an investment that will be held most of your remaining life, intraday volatility of a VTI is not a serious concern. I hope you aren't somehow submitting market orders for execution in the pre-market though.

Thanks. It’s usually 1.5k/2k every two weeks, so pretty small orders.

But volatility cuts both ways, correct? My thinking is over the long run the loses and gains due to volatility will balance out.

[markjk]

Interesting question but it will have little to no impact (likely no impact) on your portfolio over time. It's basically a market timing question and could cut either way as you've already eluded to. Time in the market is what will matter most. The time of day you place your order every two weeks is a minor and relatively insignificant detail. I wouldn't spend too much time thinking about it.

[ad2007]

Wouldn't it be easier in this case to to use the mutual fund version?

[LTCM]

I hope you aren't somehow submitting market orders for execution in the pre-market though.

I submit my EDV orders pre-market as market orders. The 5-10c spread during the day annoys me, so I place them pre-market and they get executed in the opening auction at what I assumed was a tighter (1c) spread than during the day.

Am I crazy?

[Lyrrad]

I hope you aren't somehow submitting market orders for execution in the pre-market though.

I submit my EDV orders pre-market as market orders. The 5-10c spread during the day annoys me, so I place them pre-market and they get executed in the opening auction at what I assumed was a tighter (1c) spread than during the day.

Am I crazy?

I think it depends on the ETF. I've been buying an ETF with volume about the tenth of EDV. I've experimented with placing a few limit on the open orders for a share or two, but I think my orders are causing the price to jump a few cents. I've been setting the limit a few cents above the last close, and the price jumped at the open a couple of times, and then immediately dropped back down during the day. It is a fund with a pretty stable share price and the price rarely shifts more than a few cents a day.

I've noticed that the bid/ask spread is usually 1 cent, or <0.01% when the market is open, so I'll probably do marketable limit orders from now on.

[muffins14]

If one is placing orders biweekly for VTI before market open, using market orders, and getting the exact price at market open, is this somehow less favorable than waiting to 10:00AM EST? I ask to see whether I should continue my practice of placing orders around 5AM before market open using market orders, or switch my new investments over to Fidelity which places automatic ETF investments at 10AM EST. I can't see where my returns have been impacted by my current practice at all.

I know the general rule with ETFs is to not trade at market open or 30 min before close, but does that really apply to high volume ETFs? I get that there is a lot of theory and evidence against trading at the open, but in actuality those it really make a difference for VTI and other ETFs like it?

Sure, there may be a little volatility but that could cut either way and it's a roll of the dice if you benefit or lose, which is effectively noise in the long run. Or am I looking at this incorrectly?

I would think this would subject you to paying a huge cost relative to waiting until 9:30 EST.

While the market is closed someone could fill your offer for 10-20-100% over the last closing price. I personally would not do a market order until the market was open

[whodidntante]

I hope you aren't somehow submitting market orders for execution in the pre-market though.

I submit my EDV orders pre-market as market orders. The 5-10c spread during the day annoys me, so I place them pre-market and they get executed in the opening auction at what I assumed was a tighter (1c) spread than during the day.

Am I crazy?

No, since your order executes at the opening cross. I was talking about avoiding market orders in pre market trading.

[whodidntante]

There is high volatility in the stock market at market open, so yes, it impacts VTI. However, for a small purchase every two weeks and an investment that will be held most of your remaining life, intraday volatility of a VTI is not a serious concern. I hope you aren't somehow submitting market orders for execution in the pre-market though.

Thanks. It’s usually 1.5k/2k every two weeks, so pretty small orders.

But volatility cuts both ways, correct? My thinking is over the long run the loses and gains due to volatility will balance out.

Yep. It goes both ways. I accumulate into high volatility assets and then sell them to rebalance on purpose. Why? Look at price charts. Wicked drops followed by melt ups. Make the volatility work in your favor. I'm really lazy about rebalancing though.

[familythriftmd]

Just finished Bernstein's great new edition of the Four Pillars of Investing. I think that he recommended investing between 10 and 3:30 Eastern or something like that. Another reason I do VTSAX over VTI -- it always goes in at 4 -- the other being I put in the exact dollar amount.

[PersonalFinanceJam]

If one is placing orders biweekly for VTI before market open, using market orders, and getting the exact price at market open, is this somehow less favorable than waiting to 10:00AM EST? I ask to see whether I should continue my practice of placing orders around 5AM before market open using market orders, or switch my new investments over to Fidelity which places automatic ETF investments at 10AM EST. I can't see where my returns have been impacted by my current practice at all.

I know the general rule with ETFs is to not trade at market open or 30 min before close, but does that really apply to high volume ETFs? I get that there is a lot of theory and evidence against trading at the open, but in actuality those it really make a difference for VTI and other ETFs like it?

Sure, there may be a little volatility but that could cut either way and it's a roll of the dice if you benefit or lose, which is effectively noise in the long run. Or am I looking at this incorrectly?

With due respect, much has been made of these general rules here but if you’ve been following the different threads that have popped up my basic take away has been for heavily traded ETFs like VTI it doesn’t much matter. I think you are looking at it correctly. Your wording is a little confusing because part of it makes it seem like you are trading in the pre-market before the actual opening. That would be less than desirable. However, the rest of your wording states your order executes at the opening price. I surmise whoever your broker is and whatever procedure you are doing is actually executing what is a known as a market on open order. That way you are assured of getting the opening price or at least very close to it, but can place the trade request when the market is not open.

If you are ok with your procedure then great. If you want to automate it, most of the newer brokerage platforms can have automated recurring investments in ETFs. Of the traditional brokerages, Fidelity now lets you set up recurring investments for any stock/ETF. The other traditional brokerage which does this is E*Trade. However, they have a select list they support so it isn’t everything. VTI is on the list.

[Do_Nothing]

If one is placing orders biweekly for VTI before market open, using market orders, and getting the exact price at market open, is this somehow less favorable than waiting to 10:00AM EST? I ask to see whether I should continue my practice of placing orders around 5AM before market open using market orders, or switch my new investments over to Fidelity which places automatic ETF investments at 10AM EST. I can't see where my returns have been impacted by my current practice at all.

I know the general rule with ETFs is to not trade at market open or 30 min before close, but does that really apply to high volume ETFs? I get that there is a lot of theory and evidence against trading at the open, but in actuality those it really make a difference for VTI and other ETFs like it?

Sure, there may be a little volatility but that could cut either way and it's a roll of the dice if you benefit or lose, which is effectively noise in the long run. Or am I looking at this incorrectly?

With due respect, much has been made of these general rules here but if you’ve been following the different threads that have popped up my basic take away has been for heavily traded ETFs like VTI it doesn’t much matter. I think you are looking at it correctly. Your wording is a little confusing because part of it makes it seem like you are trading in the pre-market before the actual opening. That would be less than desirable. However, the rest of your wording states your order executes at the opening price. I surmise whoever your broker is and whatever procedure you are doing is actually executing what is a known as a market on open order. That way you are assured of getting the opening price or at least very close to it, but can place the trade request when the market is not open.

If you are ok with your procedure then great. If you want to automate it, most of the newer brokerage platforms can have automated recurring investments in ETFs. Of the traditional brokerages, Fidelity now lets you set up recurring investments for any stock/ETF. The other traditional brokerage which does this is E*Trade. However, they have a select list they support so it isn’t everything. VTI is on the list.

Thank you. And apologies for the wording, but you concluded correctly: I am placing market on open orders, not actually trading in the pre-market.

I just wanted to double check that I wasn't make a big mistake because after reading some other threads it seems like placing an order prior to 10AM EST is a cardinal sin or something. VTI on market open is really no different than VTI at noon, 2PM, etc., as far as I can tell.

[PersonalFinanceJam]

…
Thank you. And apologies for the wording, but you concluded correctly: I am placing market on open orders, not actually trading in the pre-market.

I just wanted to double check that I wasn't make a big mistake because after reading some other threads it seems like placing an order prior to 10AM EST is a cardinal sin or something. VTI on market open is really no different than VTI at noon, 2PM, etc., as far as I can tell.

I placed my very first order for an ETF in 2008. I opened a Fidelity brokerage account to do so. I did this mostly as a learning experience for myself. Partly because of the rhetoric here. I was terrified because I thought the market was just waiting to pounce on my little order and ensure I didn’t get a good fill. If I didn’t do everything correctly would I even see this money again? The other cardinal sin was I opened a Fidelity account. Now I had to worry about the vultures at Fidelity swooping in and relentlessly trying to entice me into high fee products. Despite what some say now there has been a significant bias in the past against using anything other than Vanguard here. My final worry was that after placing this order, I would be moments away from becoming a day trader.

The thing I learned from all of the above? When it is said you should tune out the noise, that also applies to posts on Bogleheads. None of my fears were founded in any regard. Respected people have written about these general rules for ETFs and I think they can apply depending on which ETF you are buying. For many of the Boglehead approved ETFs it really doesn’t matter.

[lazynovice]

…
Thank you. And apologies for the wording, but you concluded correctly: I am placing market on open orders, not actually trading in the pre-market.

I just wanted to double check that I wasn't make a big mistake because after reading some other threads it seems like placing an order prior to 10AM EST is a cardinal sin or something. VTI on market open is really no different than VTI at noon, 2PM, etc., as far as I can tell.

I placed my very first order for an ETF in 2008. I opened a Fidelity brokerage account to do so. I did this mostly as a learning experience for myself. Partly because of the rhetoric here. I was terrified because I thought the market was just waiting to pounce on my little order and ensure I didn’t get a good fill. If I didn’t do everything correctly would I even see this money again? The other cardinal sin was I opened a Fidelity account. Now I had to worry about the vultures at Fidelity swooping in and relentlessly trying to entice me into high fee products. Despite what some say now there has been a significant bias in the past against using anything other than Vanguard here. My final worry was that after placing this order, I would be moments away from becoming a day trader.

The thing I learned from all of the above? When it is said you should tune out the noise, that also applies to posts on Bogleheads. None of my fears were founded in any regard. Respected people have written about these general rules for ETFs and I think they can apply depending on which ETF you are buying. For many of the Boglehead approved ETFs it really doesn’t matter.

Great post.

[Cocoa Beach Bum]

,,, Another reason I do VTSAX over VTI -- it always goes in at 4 -- the other being I put in the exact dollar amount.

I guess you're not bothered by continually paying an expense ratio for VTSAX that's one third larger than VTI's.

[familythriftmd]

,,, Another reason I do VTSAX over VTI -- it always goes in at 4 -- the other being I put in the exact dollar amount.

I guess you're not bothered by continually paying an expense ratio for VTSAX that's one third larger than VTI's.

I guess you make it seem like a lot, because both are infinitesimally small. We're talking about one basis point.

I may have different priorities. If they were otherwise exactly the same, then the tiebreaker would be the one that is 0.01% cheaper.

[nisiprius]

,,, Another reason I do VTSAX over VTI -- it always goes in at 4 -- the other being I put in the exact dollar amount.

I guess you're not bothered by continually paying an expense ratio for VTSAX that's one third larger than VTI's.

Differences between expense ratios should be evaluated as absolute differences, not as ratios. As is being discussed to death in this thread, in Vanguard funds at least the differences between ETF and Admiral shares of the mutual funds are lost in the noise, and do not always turn out as expected when you look at actual returns.

For example, right now, if you use PortfolioVisualizer to compare VTSAX and VTI, from inception of VTI through 10/31/2023 in PortfolioVisualizer, VTI "should" have had an 0.01% higher return. But what happened in real life was that VTI had an 0.01% lower return.

Source



This is just a random result of the particular time period. Sometimes one is ahead, sometimes the other. The point is that if you believe that the difference in expense ratios means that VTI is always going to put a little more money in your pocket than VTSAX, you're mistaken. As I said there is intense discussion in that other thread, with ETF fans arguing about how return is measured, and that the right comparison is with the ETF's NAV instead of the ETF's market price, etc.

[livesoft]

As I read this thread, I thought of the following questions:

1. Does a placing market order at 10 am matter for high volume ETFs like VTI?

2. Does a placing market order at noon matter for high volume ETFs like VTI?

3 Does a placing market order at 2 pm matter for high volume ETFs like VTI?

4. Does a placing market order at 15 minutes before market close matter for high volume ETFs like VTI?

5. Does a placing market order at 9:45 am matter for high volume ETFs like VTI?

All of the above are very likely to get one a different price for VTI.

Also for every buyer there is a seller. If it is disadvantageous for a buyer to make a buy at the market open, then is it advantageous for a seller to sell at the market open?

[illumination]

It would be hard for me to see a case that could be made that buying VTI this way means you're consistently "overpaying" for it versus if you say picked a "better" time on the same day to trade. We know there's volatility and prices fluctuate, but I doubt some clear pattern emerges that this way of buying it becomes a long term drag on returns.

The discipline of regularly buying this way will almost certainly far outweigh any minuscule headwinds if it makes you "stay the course".

[PersonalFinanceJam]

As I read this thread, I thought of the following questions:

1. Does a placing market order at 10 am matter for high volume ETFs like VTI?

2. Does a placing market order at noon matter for high volume ETFs like VTI?

3 Does a placing market order at 2 pm matter for high volume ETFs like VTI?

4. Does a placing market order at 15 minutes before market close matter for high volume ETFs like VTI?

5. Does a placing market order at 9:45 am matter for high volume ETFs like VTI?

All of the above are very likely to get one a different price for VTI.

Also for every buyer there is a seller. If it is disadvantageous for a buyer to make a buy at the market open, then is it advantageous for a seller to sell at the market open?

The OP was concerned because he wasn’t following the “rules” as laid out by many here. In fact I think according to the rules market orders at any time of day are right out. The answer of course as mentioned elsewhere is it’s not going to materially matter the way say using high fee products would. There will of course be a difference and there is an optimal path for buys and then sells but we are not going to know ahead of time what they are.

If one were to look at my last several buys which were all done before noon, one would conclude that is best because the market was up later in the day so I would have paid a higher price than I did. However, several of the buys before those specific ones resulted in paying a higher price than buying later in the day. In none of the cases are we talking about huge amounts of money. The differences are quite small.

[livesoft]

The OP was concerned because he wasn’t following the “rules” as laid out by many here. ....

Well, I think many readers of bogleheads.org know that I often poke fun at those "rules" that often seem to have just been made up. One of my best "breaking of the rules" was when I sold shares of VTI at the market open:
viewtopic.php?p=2600976#p2600976

I was admonished for a great trade the next day in that same thread: "What you just did is an extremely bad idea." because the writer of that comment misread what I did.

[PersonalFinanceJam]

The OP was concerned because he wasn’t following the “rules” as laid out by many here. ....

Well, I think many readers of bogleheads.org know that I often poke fun at those "rules" that often seem to have just been made up. One of my best "breaking of the rules" was when I sold shares of VTI at the market open:
viewtopic.php?p=2600976#p2600976

I was admonished for a great trade the next day in that same thread: "What you just did is an extremely bad idea." because the writer of that comment misread what I did.

Apologies for not recognizing a fellow heretic!

[grabiner]

Also for every buyer there is a seller. If it is disadvantageous for a buyer to make a buy at the market open, then is it advantageous for a seller to sell at the market open?

Not relevant for VTI, which almost always trades at a small spread.

For lower-volume ETFs, it may be disadvantageous to place a market order to either buy or sell at the market open. Without your order, there might be no trades at the opening cross, so that your market order is effectively placed into a large spread. Alternatively, there might be few enough trades at the opening cross that your order moves the crossing price. In either case, given everyone else's orders, adding your order to buy would result in a higher price than adding your order to sell. (The trading is zero-sum; if your market order drives up the opening price, then the seller whose limit order you matched gets a benefit.)