There are two types of limit orders that we see used in an effective way:
- Consider a marketable limit order—a limit price either well above the offer when buying or well below the ask when selling. This essentially accomplishes the same goal as a market order, but with some price protection and mitigation of unexpected, large price deviations between ETFs and their underlying assets or the market overall.
- For clients who like to use stop orders as a way to enter or exit an ETF position, placing stop limit orders is advisable. A stop order essentially becomes a market order and does not offer you the same protection as a stop limit order for reasons that are analogous to the discussion above about market versus limit orders.
Block
If your order is of sufficient size (usually 10,000–20,000 shares or more), you should consider sending the order to your broker’s block desk. In these cases, the order size might result in additional transaction costs, such as market-impact costs, or in depleting the depth of the ETF’s order book, resulting in poor execution outcomes. However, block desks can easily source liquidity for you in any ETF—regardless of how large the trade may be or how little ADV an ETF may have—to ensure execution at a fair market price and in short order.
Call
Finally, if you have questions about ETF liquidity or trading or want further assistance in trading large ETF positions, my colleagues on the Vanguard ETF Capital Markets Team and I are ready and available to help.
Brandon Clark is a manager in Vanguard Equity Investment Group.