Bid/ask spread affects a limit order?

[qprjames]

I normally only trade on commsec with limit trades. So i know exactly what exactly what my buy price will be if i achieve the price i want for the stock. The question i have is, does the bid/ask spread affect me, or is this just for 'at market' trades.

I am looking at buying an ETF. Stw has a much lower bid/ask price but i'm not sure if that is any benfit to me if i am only doing 'limit' orders.

any feedback is appreciated

 

[Country Lad]

“At Market” has a few risks, one being as you suspect, the market depth being against you or turning against as you place the order.

Take the example below of the recent market darling TGN. Say you are holding 100,000 shares and you think it is time to sell. You have a look and you see that there are 100,000 or so on the buy side at 48 and 47.5 and the last trade was 47.5.

You place an order “At Market”. As you are placing that order, trades go through immediately before you click the final sell button and the market depth looks like the pic below at the time your order hits the market.

Your trade will then go through the buy list resulting in your 100,000 being sold at an average of 35.38 and you have received about 25% less than you expected. Of course, your broker’s algorithm may possibly have stopped your trade as it would be deemed to be moving the market.

Had you placed a limit order, the trading may have been more orderly and slowly recovered to your limit price. Or it may have gone lower but in an orderly fashion.

 

[tech/a]

You could buy and sell at a stop limit but you risk price jumping yours

 

[qprjames]

You could buy and sell at a stop limit but you risk price jumping yours

what do you mean by 'jumping yours'? You mean if i held a stock at $10, the stop limit would have sold at $9.75 (my get out/sell out price) but the 'at market' order might have achieved $9.50?

 

[qprjames]

“At Market” has a few risks, one being as you suspect, the market depth being against you or turning against as you place the order.

Thanks country lad. I kind of get what you have written. I assume a lower bid/ask price will stop what you described from happening?

And my second question is....is this bid/ask ratio even a factor if i am making 'limit orders'?

I don't think i'll ever be making 'at market' orders as i wouldn't want what you described to happen, and iam still happy even if i don't achieve the purchase of the stock i want. I would just try again the next day....and the next etc...to achieve the price i want.

There seems to be very little difference between the ETF's i am currently looking at (STW vs IOS vs VAN etc), but given the amount i wish to trade ($100k+ to start and then over time maybe $20k per year) a little factor like the bid/ask price which prove good enough reason to select one ETF over another. ((P.s. yes i do realise the VAS covers the asx300 and the other two cover asx200.))

thanks, james