section header ETF fundamentals
subsection header Trading
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Common order types
ETFs allow you to place any type of trade that you would with equities.
Here are some common order types:
Market order |
An order to buy or sell immediately at the best available price in the market at the time the order is executed. When you place a market order, your priority is completing the trade quickly, without securing a particular price. |
Limit order |
An order to buy or sell at a chosen price that will be executed only if units are available at that price or better. Limit orders protect you from executing a trade at an undesirable price. When you place a limit order, your priority is securing a certain price, not speed of execution. The risk with a limit order is that the market may never reach the limit, and your order may not be executed. |
Marketable limit order |
An order to buy at a chosen price greater than the best available price in the market, or to sell at a chosen price that is less than the best available price in the market. This increases the chance that your order will be executed, while also providing greater price certainty. If a better price is available at the time your order is executed, best execution obligations will ensure you receive any price improvement available in the market. |
Stop order |
You set a price—the stop price—at which you will automatically buy or sell. If the market reaches the stop price, your stop order becomes a market order, executing at the best available price in the market. That price may have changed, for better or worse, in the moments after your stop price triggered your market order. When you place a stop order, your priority is trying to limit a loss or protect a profit, without any guarantee of securing a particular price. |
Stop-limit order |
Similar to a stop order, but in addition to setting a stop price, you also set a limit price. If the market reaches the stop price your stop order becomes a limit order, at the limit price you specified. When you place a stop-limit order, your priority is trying to limit a loss or protect a profit without the unpredictability of a market order. |
Your ETF trading desk can help
An ETF trading desk, if one is available to you, can use its trading tools and network of relationships to help you when you place a large order. Your ETF trading desk may be able to:
- Review the depth of interest in an ETF before placing a trade. You may be able to determine from your trading screen only how many units are available at the best-bid and best-ask prices. Your ETF trading desk can evaluate additional availability of units.
- Implement different trading strategies to manage the market impact of large trades.
- Provide additional liquidity by creating or redeeming ETF units, if your broker is an authorized dealer.
- Obtain an indicative quote to execute the entire trade.
A Vanguard sales representative is a good starting point for a discussion about ETF liquidity, and can connect you with one of our ETF capital markets specialists. The specialist can access additional data on the depth of liquidity, suggest trading execution strategies, connect you with liquidity providers, and address any other questions you might have about trading.
For larger trades, the specialist can consult with market makers to help you maximize potential liquidity in the ETF. The Vanguard capital markets specialist will know whether your requested trade size is large enough to engage a market maker or whether liquidity is naturally available for your order. A large order for one product may not be a large order for another.
Basics
Learn the basics of ETFs, including their history, how they compare to mutual funds, what types are available and more.
Management
Learn about the different types of exchange-traded products, how index and active ETFs are managed and more.
Strategies
Learn about strategic and tactical uses for ETFs, including asset and sub-asset allocation, portfolio completion, cash equitization and more.
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