Market or Limit?

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senex
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Re: Market or Limit?

Post by senex »

comeinvest wrote: Fri Oct 13, 2023 2:06 am I know it's an old thread; but did you get any insight on whether market orders might get more advantageous price improvements than marketable limit orders?
Thanks for asking. After further discovering that price improvement goals are also a function of market cap and order size, I figured that my sampel size (only a few trades a year) would be too small to draw any meaningful conclusions. So I kinda gave up on this project. Sorry I have no insight to share.
Sunrise
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Re: Market or Limit?

Post by Sunrise »

Hello all, up to this point in my investing journey I've been using solely mutual funds and have no experience trading ETFs or individual stocks, so I've found this thread extremely helpful as I am currently working to come up the learning curve on how to buy/track(e.g. Cost Basis)/sell ETFs. Since this thread is pretty general and not too old, and it was resurrected about a month ago, I thought I would add on my couple questions:

Scenario #1 I wanted to ask about: About a month ago I opened a Custodial Roth IRA account at Fidelity for my minor daughter (Senior in HS). She has earned over $1000 working at a restaurant this year, we made a $1000 cash contribution for 2023 to the account, it's currently in SPAXX money market core position.

With part of this $1000 we would like to invest in one share of VOO Vanguard S&P 500 ETF. I'm in the Fidelity account right now and doing a practice Trade setup. I entered symbol VOO and see a larger font (in bold) price of $414.31 mid-window, and under that Bid 413.68 x 1 and Ask 414.09 x 1 (I assume the " x 1" means for one share).

I want to make sure I understand correctly: The top $414.31 would be the amount that the last share sold for on last Friday 11/17 (today is Sunday 11/19), or in other words the "current price" ? And the Ask $414.09 price is what the market makers provided (at end of day Friday) as price at which they will sell securities? So I read the Bogleheads wiki "Order" page, which conveyed for ETFs a minimal risk approach is to place a marketable limit order, which I've gathered from this thread is simply placing the Limit price a few cents higher.

My question is, in my example, would that be a few cents higher than the "current price" $414.31 or the Ask price $414.09? Seems like it's been said both ways in this thread. I hope what I wrote above made sense. I understand I have the option of doing a standard market order also, but I didn't know if I may run into issues because I am only trying to buy one share?

Final question: For this "Roth IRA for Minor" account, the Cost Basis Default Disposal Method (for ETFs) is set to "First In, First Out (FIFO)", but if you hit the "Change" link there are ten other method types. Since this an IRA, it doesn't really matter (e.g. because no tax-loss harvesting) and FIFO should be fine, agree? I have read that for a taxable account it is recommended to set cost basis method to "Specific Identification", so I wanted to ask the question for this IRA just in case. Thank you.
Sunrise
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Re: Market or Limit?

Post by Sunrise »

Scenario #2 I wanted to ask about: I also recently opened a taxable brokerage (The Fidelity Account) account at Fidelity, to be our first significant taxable investment account. It has not been funded yet. I plan to invest in 100% tax-efficient stock ETF(s), VTI to start.

I want to make sure I get this new Fidelity taxable brokerage account set up properly from the beginning as needed before starting to buy shares so as I get smarter about how to implement tax-loss harvesting, capital-loss carryovers, taxable/tax-deferred rebalancing, etc., and have the opportunities, I can take advantage of all ways having a sizable taxable account can benefit the overall portfolio, possible early-retirement (we are in our early-to-mid 50s), etc.

So I believe I know that for the taxable account I should set the Cost Basis Method to "Specific Identification". If I go to "Account Features" > "Cost Basis Information Tracking", I don't see the taxable account listed yet. Maybe that's because I haven't funded it yet? Do I need to have the Cost Basis Method set to "Specific Identification" before starting to buy my initial shares of VTI ETF? Or do I do that during the Trade/Buy process? Is there anything else I should set up for this taxable account to ensure the best long-term results for overall portfolio? Thank you!
Last edited by Sunrise on Mon Nov 20, 2023 8:52 am, edited 1 time in total.
SnowBog
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Re: Market or Limit?

Post by SnowBog »

Sunrise wrote: Sun Nov 19, 2023 9:00 pm Scenario #1 I wanted to ask about:
...
With part of this $1000 we would like to invest in one share of VOO Vanguard S&P 500 ETF.
... in other words the "current price" ?
...
My question is, in my example, would that be a few cents higher than the "current price" $414.31 or the Ask price $414.09?
For my two cents, you are over thinking this...

First, the "current price" doesn't really apply after-hours and over the weekend. What you saw was the "last price" - which doesn't have a lot to do with the price on Monday as the "open" price could be higher or lower (or maybe near the same).

Second, at least in my view, the primary purpose of "limit" orders was to make sure you didn't accidentally place an order for more money than you have available. For example, let's say you planned to buy 2 shares at "market" price - expecting that would be roughly $419/share, so total cost would be around $838. But let's say the price jumped up to $505 a share, which would put the "market" cost in at $1010 - or $10 over the funds available. Before fractional shares, you could avoid this by putting in a "limit" order for say $420/share. This would purchase two shares is they were < $420, and buy nothing (limited) if > $420.

Since Fidelity (and may others) supports "fractional shares", you have other options now. Namely, instead of buying # of shares you can choose to buy a specific $ amount. For example, you could buy $1,000 at "market" - getting whatever shares that works out to be. This works very similar to buying mutual funds (except you can do so any time during trading hours - not have to wait until end-of-day).

You can still do a "dollar" purchase with a "limit" amount. For example, if your crystal ball works, and it tells you that the price will drop to $408, maybe you want to put the "limit" order in at $408/share for your full $1,000 (buying whatever shares that works out to). But, odds are your crystal ball works as poorly as mine - meaning this is just guessing... Additionally, in 30+ years, the few cents difference will be a rounding error. As such, the usual recommendation is "time in the market beats timing the market".
SnowBog
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Re: Market or Limit?

Post by SnowBog »

Sunrise wrote: Sun Nov 19, 2023 9:38 pm Scenario #2 I wanted to ask about:
For IRA - correct - does not really matter. With a minor caveat... Given this is a Roth, there is some flexibility in withdrawing contributions tax and penalty free. If you don't sell any "lots", your history might help you track contributions vs. growth/earnings. But it's probably better to keep your own records anyway - and not rely on the history which won't be right if/when you make trades there.

For taxable, it's recommended (but not required) to keep track of lots ("specific cost"). The main advantage is more flexibility in choosing "which" lots to sell - letting you pick higher or lower cost (aka lower or higher taxes owed).

From what I can recall, Fidelity doesn't give you a chance to "set this up" in advance. Once you have shares in the account, then you can go in and change things like "specific identification", as well as your "default" method for sale (FIFO, highest cost, tax-sensitive, etc.). These are changeable - and can be overridden - such as when you sell and as part of the sell order you pick "specific lots" which will give you a list of your lots to pick from.
the_wiki
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Re: Market or Limit?

Post by the_wiki »

Sunrise wrote: Sun Nov 19, 2023 9:00 pm

With part of this $1000 we would like to invest in one share of VOO Vanguard S&P 500 ETF. I'm in the Fidelity account right now and doing a practice Trade setup. I entered symbol VOO and see a larger font (in bold) price of $414.31 mid-window, and under that Bid 413.68 x 1 and Ask 414.09 x 1 (I assume the " x 1" means for one share).
Not that this is really your question, but I would recommend using SPLG instead of VOO for your kid's account. Both are S&P500 index funds. VOO share price is too high so it's hard to even buy 1 or 2 shares at a time. SPLG is $53 a share and even has a slightly lower ER. Volume is high so no worries about order type, either, just do market. At $53 a share, even teens can afford a share or two every paycheck.

(Also see SCHX, SPTM, SCHB for same reason if you want more total market funds)
Tamalak
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Re: Market or Limit?

Post by Tamalak »

Market order. Come on. What are the odds of a flash crash of any significance exactly when you buy/sell the thing?

I might avoid lump summing enormous amounts of money in or out of the market all at once, but I wouldn't mess around with limit.
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White Coat Investor
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Re: Market or Limit?

Post by White Coat Investor »

DLAKE wrote: Tue Oct 05, 2021 9:46 am Just curious what the community does when buying VTI in taxable for a long term investment on a consistent manner. Do you typically purchase with a limit order or market order?

I ask because I had a limit order this AM and feel like I would’ve benefited more if I had just used a market order as VTI has increased quickly. Just wondering if there is a significant benefit in doing one or the other.
I used to do limits but changed to markets exclusively for pretty much all the ETFs I buy. They're all very liquid and I have yet to feel I didn't get a fair price.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
SnowBog
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Re: Market or Limit?

Post by SnowBog »

Tamalak wrote: Mon Nov 20, 2023 12:21 pm Market order. Come on. What are the odds of a flash crash of any significance exactly when you buy/sell the thing?

I might avoid lump summing enormous amounts of money in or out of the market all at once, but I wouldn't mess around with limit.
It can matter if you place a trade outside of market hours - and aren't buying $$ (aka fractional shares).

Per prior example, if you planned to buy # shares @ Y price, and the price at open went up, you may not have sufficient funds to execute the order anymore.

That isn't a problem if you place the trade during market hours (but not everyone can do so). It also isn't a problem if you make a dollar (aka fractional share) order - as this will seek to buy as many shares as possible for your $$ amount.
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