Comments on: Dos and Don’ts in Trading ETFs http://www.canadiancapitalist.com/dos-and-don%e2%80%99ts-in-trading-etfs/ Helping you invest and prosper Sun, 12 Feb 2012 00:54:40 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: alex http://www.canadiancapitalist.com/dos-and-don%e2%80%99ts-in-trading-etfs/#comment-220626 alex Wed, 19 May 2010 18:05:08 +0000 http://www.canadiancapitalist.com/?p=3803#comment-220626 CC has exaggerated a bit with Ted Feight who presumably lost 99.9% of ETF value in his investments in a variety of Russel index funds. He did not. The obvious mistake was later corrected. If you read carefully to the end of the article you will find that next day the trades were canceled. He did lose ~10% on his Chinese ETF, however. Nevertheless, I agree with the message. Stop loss can be detrimental in fast moving markets. It seems that stop limit orders can be safer in such instances. Some banks (such as RBC) do not even allow stop loss orders in Canadian markets. Cheers CC has exaggerated a bit with Ted Feight who presumably lost 99.9% of ETF value in his investments in a variety of Russel index funds. He did not. The obvious mistake was later corrected. If you read carefully to the end of the article you will find that next day the trades were canceled. He did lose ~10% on his Chinese ETF, however.

Nevertheless, I agree with the message. Stop loss can be detrimental in fast moving markets. It seems that stop limit orders can be safer in such instances. Some banks (such as RBC) do not even allow stop loss orders in Canadian markets.

Cheers

]]> By: Financial Ramblings « Intelligent Speculator http://www.canadiancapitalist.com/dos-and-don%e2%80%99ts-in-trading-etfs/#comment-220003 Financial Ramblings « Intelligent Speculator Sat, 15 May 2010 13:54:33 +0000 http://www.canadiancapitalist.com/?p=3803#comment-220003 [...] is collapsing @ Sillicon Valley Insider -Baidu (BIDU) soars after stock split @ BloggingStocks -Do’s and Don’t when trading ETF’s @ CanadianCapitalist -Cisco set to move higher @ TheStreet -Mutual fund investing: active vs [...] [...] is collapsing @ Sillicon Valley Insider -Baidu (BIDU) soars after stock split @ BloggingStocks -Do’s and Don’t when trading ETF’s @ CanadianCapitalist -Cisco set to move higher @ TheStreet -Mutual fund investing: active vs [...]

]]> By: Finanical Ramblings http://www.canadiancapitalist.com/dos-and-don%e2%80%99ts-in-trading-etfs/#comment-219990 Finanical Ramblings Sat, 15 May 2010 10:01:35 +0000 http://www.canadiancapitalist.com/?p=3803#comment-219990 [...] Do’s and Don’ts with ETF’s @ Canadian Capitalist [...] [...] Do’s and Don’ts with ETF’s @ Canadian Capitalist [...]

]]> By: Friday Links - Canadian Finance Blog http://www.canadiancapitalist.com/dos-and-don%e2%80%99ts-in-trading-etfs/#comment-219813 Friday Links - Canadian Finance Blog Fri, 14 May 2010 09:01:24 +0000 http://www.canadiancapitalist.com/?p=3803#comment-219813 [...] Canadian Capitalist tells us the dos and don’ts in trading ETFs. [...] [...] Canadian Capitalist tells us the dos and don’ts in trading ETFs. [...]

]]> By: Potato http://www.canadiancapitalist.com/dos-and-don%e2%80%99ts-in-trading-etfs/#comment-219729 Potato Thu, 13 May 2010 20:54:01 +0000 http://www.canadiancapitalist.com/?p=3803#comment-219729 @CC: and the brokers that do charge different fees for market vs limit orders often charge more for the market order because of "liquidity fees". A stop-loss order is handy for an individual investor to protect themselves against a rapidly disseminating negative news item (e.g., a report of accounting fraud) when they know that they can't keep minute-to-minute tabs on their investments (for instance, due to a day job). It's another form of protection against ignorance. However, that shouldn't really be applicable to an ETF since you get the protection from ignorance from the diversification, and any big moves may be just market gyrations rather than changes to fundamentals... I also don't think that professionals should have them because it's their job to keep up-to-date on the goings-on of their portfolio, and because they should know that their order sizes are too big for market orders (they can swing a market all on their own). @CC: and the brokers that do charge different fees for market vs limit orders often charge more for the market order because of “liquidity fees”.

A stop-loss order is handy for an individual investor to protect themselves against a rapidly disseminating negative news item (e.g., a report of accounting fraud) when they know that they can’t keep minute-to-minute tabs on their investments (for instance, due to a day job). It’s another form of protection against ignorance.

However, that shouldn’t really be applicable to an ETF since you get the protection from ignorance from the diversification, and any big moves may be just market gyrations rather than changes to fundamentals…

I also don’t think that professionals should have them because it’s their job to keep up-to-date on the goings-on of their portfolio, and because they should know that their order sizes are too big for market orders (they can swing a market all on their own).

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/dos-and-don%e2%80%99ts-in-trading-etfs/#comment-219705 Canadian Capitalist Thu, 13 May 2010 19:28:48 +0000 http://www.canadiancapitalist.com/?p=3803#comment-219705 @Sampson: I agree that the risk of a market order not getting filled close to the last market price is very low. But in highly volatile markets, investors might get burned with a sell order that attracts only stink bids. I agree that the risk here isn't as large as with stop-loss orders but most large brokers charge the same for a market order and a limit order, so why take the risk at all? @Sampson: I agree that the risk of a market order not getting filled close to the last market price is very low. But in highly volatile markets, investors might get burned with a sell order that attracts only stink bids. I agree that the risk here isn’t as large as with stop-loss orders but most large brokers charge the same for a market order and a limit order, so why take the risk at all?

]]> By: Sampson http://www.canadiancapitalist.com/dos-and-don%e2%80%99ts-in-trading-etfs/#comment-219701 Sampson Thu, 13 May 2010 19:06:01 +0000 http://www.canadiancapitalist.com/?p=3803#comment-219701 Re: Market Orders. Is the risk actually that high? I know I've been 'burned' with these, but not exactly, orders were executed within 1% of my expected bid price. I don't know the 'market mechanics' behind these glitches, but maybe there is support against market orders if these types of things now have a higher probability of happening. Re: Market Orders.

Is the risk actually that high? I know I’ve been ‘burned’ with these, but not exactly, orders were executed within 1% of my expected bid price.

I don’t know the ‘market mechanics’ behind these glitches, but maybe there is support against market orders if these types of things now have a higher probability of happening.

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/dos-and-don%e2%80%99ts-in-trading-etfs/#comment-219648 Canadian Capitalist Thu, 13 May 2010 15:15:40 +0000 http://www.canadiancapitalist.com/?p=3803#comment-219648 @Erasm: Yes, many investment books do recommend stop-loss orders but I question whether an investor should be invested in a stock at all if she can't handle a 20% drop. A stock could drop 20% for reasons that have nothing to do with the fundamentals. Maybe a large mutual fund has a new manager who decides to start over with a clean slate. Regardless, it is not true that most trades were canceled. Let's take VTI as an example. It was trading at a price higher than $55 for the past three months. An investor with a stop-loss order at say $44 might have sold VTI sold for $25 and their trade would stand. That's a huge loss for what essentially turned out to be a trading glitch. I wouldn't take that risk with long-term investments. @Erasm: Yes, many investment books do recommend stop-loss orders but I question whether an investor should be invested in a stock at all if she can’t handle a 20% drop. A stock could drop 20% for reasons that have nothing to do with the fundamentals. Maybe a large mutual fund has a new manager who decides to start over with a clean slate.

Regardless, it is not true that most trades were canceled. Let’s take VTI as an example. It was trading at a price higher than $55 for the past three months. An investor with a stop-loss order at say $44 might have sold VTI sold for $25 and their trade would stand. That’s a huge loss for what essentially turned out to be a trading glitch. I wouldn’t take that risk with long-term investments.

]]> By: Erasm http://www.canadiancapitalist.com/dos-and-don%e2%80%99ts-in-trading-etfs/#comment-219641 Erasm Thu, 13 May 2010 14:58:16 +0000 http://www.canadiancapitalist.com/?p=3803#comment-219641 Interesting... Most financial books do recommend to use stop-loss orders to protect your investments and cut losses. Stocks will fluctuate, but if you put e.g. 20% trailing stop loss order it won't be filled unless some disaster happens in the market. "Flash Crash" is a bad example. Nobody still knows what happend and most trades have been cancelled anywasys... Interesting… Most financial books do recommend to use stop-loss orders to protect your investments and cut losses. Stocks will fluctuate, but if you put e.g. 20% trailing stop loss order it won’t be filled unless some disaster happens in the market. “Flash Crash” is a bad example. Nobody still knows what happend and most trades have been cancelled anywasys…

]]> By: Michael James http://www.canadiancapitalist.com/dos-and-don%e2%80%99ts-in-trading-etfs/#comment-219638 Michael James Thu, 13 May 2010 14:50:01 +0000 http://www.canadiancapitalist.com/?p=3803#comment-219638 I don't think stop-loss orders make much sense for long-term investors. I also don't think that short-term thinking makes much sense for stock investing. That doesn't leave much room for stop-loss orders. I don’t think stop-loss orders make much sense for long-term investors. I also don’t think that short-term thinking makes much sense for stock investing. That doesn’t leave much room for stop-loss orders.

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