In switching over to ETFs, financial advisors need to be aware of some differences in making orders. We’ll give you the information you need for seamless and efficient trading.
When trading in mutual funds, an advisor may pick out what to purchase and upload the trade to all their accounts with no fuss since the price is the same at the end of the day.
However, the price of an ETF, like stocks, changes throughout the day, with a different market ask price. The use of block trades when it comes to buying and selling ETFs would be more prudent in executing orders.
Block trading involves pushing through sizeable orders all in one shot and gives each client the same price. Advisors have several options when it comes to block trading.
Do It Yourself
In the trading platform for your custodian, trade the total shares in a block and not your individual client accounts. Know the ETF you are trading – volume, bid/ask spread – if you place too big of an order in too small a fund, you could wind up moving a fund’s price more than you had intended.
Large buy/sell orders can be made piece by piece so as not to affect the ETF price. For example if you are trying to buy 100,000 shares of an ETF, put in several trades of 10,000 or 20,000 shares. After each buy or sell, observe and analyze the market’s reaction to the orders placed.
Trading this way, in conjunction with limit orders, will give you better control over when and where the trades are executed at a price specified by you. This trading strategy is especially useful if an ETF is trading at high volumes with lots of liquidity.
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