Author Topic: bid ask spread wtf moment  (Read 4490 times)

sol

  • Walrus Stache
  • *******
  • Posts: 8366
  • Age: 42
  • Location: Pacific Northwest
bid ask spread wtf moment
« on: October 16, 2014, 03:32:02 PM »
Today I saw that VWO was down another 1%, and thought I'd partake in a little market timing by wandering over to Vanguard to pick up a bit at today's price of 40.63.  But when I went to complete my transaction, I noticed that my per share price was 42.95.  WTF?

The bid-ask spread is currently almost 8% of the total share price.  What's going on here?  How does that even make sense?  Is this just a sign of crazy volatility?

hodedofome

  • Handlebar Stache
  • *****
  • Posts: 1211
  • Age: 39
  • Location: Texas
Re: bid ask spread wtf moment
« Reply #1 on: October 16, 2014, 03:48:55 PM »
Don't know the specifics of what could have happened but I always put in either limit orders or market-on-close orders. In volatile markets, some of the HFT can get crazy. During the flash crash some guys got sold out of their positions at crazy low levels, much lower than the market was showing at the time.

TreeTired

  • Bristles
  • ***
  • Posts: 449
  • Age: 134
  • Location: North Carolina
  • I think we can make it
Re: bid ask spread wtf moment
« Reply #2 on: October 16, 2014, 03:59:52 PM »
Something is wrong there.  Today's range on VWO was 41.10 -  40.00.      Hasn't traded as high as 42.95 since September 24 !!

Double check the symbol and the price.
« Last Edit: October 16, 2014, 04:02:25 PM by TreeTired »

milesdividendmd

  • Handlebar Stache
  • *****
  • Posts: 1913
  • Location: Portlandia
    • Miles Dividend MD
Re: bid ask spread wtf moment
« Reply #3 on: October 16, 2014, 04:02:27 PM »
Are you sure that you are looking at the correct transaction?  VWO is a very liquid stock, The quoted price makes no sense, and HFT firms don't front run 1000$ orders!

sol

  • Walrus Stache
  • *******
  • Posts: 8366
  • Age: 42
  • Location: Pacific Northwest
Re: bid ask spread wtf moment
« Reply #4 on: October 16, 2014, 05:29:36 PM »
Double check the symbol and the price.

Believe it or not, I'm not a total idiot.

Go to Vanguard, log in to your brokerage account, and try to buy one share of VWO.  What I see is screenshotted in the attachment below.

When you try to buy, Vanguard charges you the asking price.  Try it yourself if you don't believe me.  It's improved a tiny bit since earlier today, but still a 7.7% spread around today's quoted 40.63 at US market close.
« Last Edit: October 16, 2014, 05:32:39 PM by sol »

ncornilsen

  • Pencil Stache
  • ****
  • Posts: 859
Re: bid ask spread wtf moment
« Reply #5 on: October 16, 2014, 05:32:09 PM »
If it's after hours, I've seen the bid-ask spread grow pretty wide.  the Market Makers way of getting paid for doing a trade on OT I guess?

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27539
  • Age: -999
  • Location: Traveling the World
Re: bid ask spread wtf moment
« Reply #6 on: October 16, 2014, 06:29:43 PM »
Double check the symbol and the price.

Believe it or not, I'm not a total idiot.

We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Ohio Teacher

  • Stubble
  • **
  • Posts: 127
Re: bid ask spread wtf moment
« Reply #7 on: October 17, 2014, 12:25:31 AM »
Not just today, and not just VWO.  I have noticed this phenomenon with a variety of ETFs, including those other than Vanguard.  The range usually gets increasingly wider as you get further into after-hours trading.  My guess has always been that it's their way of discouraging after-hours trading of their funds.   

When I used to trade VTI, VEU, VEA, VWO, etc., I would set limit orders around the previous day's closing price to avoid an after-hours market order at a stupid premium.  From what I experienced, it's virtually impossible to buy or sell these ETFs outside of 9:30 - 4:00 unless you hate money. 

hodedofome

  • Handlebar Stache
  • *****
  • Posts: 1211
  • Age: 39
  • Location: Texas
Re: bid ask spread wtf moment
« Reply #8 on: October 17, 2014, 07:26:01 AM »
Ah, well yeah after hours trading is a whole different ball game. The bid-ask spreads are crazy. Never do a market order after hours!!!

BarkyardBQ

  • Pencil Stache
  • ****
  • Posts: 667
Re: bid ask spread wtf moment
« Reply #9 on: October 17, 2014, 08:36:11 AM »
I had to look up AHT trading the other day to explain to someone why tickers change after the bell. Found this...

Quote
Wide spreads – A lower volume in trading may result in a wide spread between bid and ask prices. Therefore, it may be hard for an individual to have his or her order executed at a favorable price.

http://www.investopedia.com/ask/answers/04/061004.asp


I was buying some VHT this morning, before the bell the Quote was 110 and the Ask was 113, at the opening it was 112.
« Last Edit: October 17, 2014, 08:38:01 AM by zdravé »

RichMoose

  • Pencil Stache
  • ****
  • Posts: 945
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: bid ask spread wtf moment
« Reply #10 on: October 17, 2014, 10:17:06 AM »
I've noticed these big spreads in the past as well. They can definitely be a killer with ETF's if you're not careful. Also, check the spreads compared to the NAV because these can get wacky too. When I make my ETF purchases now I always first check the market price, then compare to NAV. If it all looks good I put in a limit order that is only valid until the end of the trading day. If it doesn't go through, I try again the next day.

workathomedad

  • Stubble
  • **
  • Posts: 189
Re: bid ask spread wtf moment
« Reply #11 on: October 17, 2014, 06:41:59 PM »
I use limits to lock in the price, though there is a chance the market will go up and you'll end up paying more later...