Choosing the right investments is half the battle. The other
half is knowing when to buy and sell.
The invention of commission free ETF trading (NYSEARCA:DBC)
doesn't mean you should be ignorant about the types of buy and sell
orders you place. The same can be said of rock-bottom online
stock commission rates. This is true whether you're a
short-term trader or a long-term investor. So, if you're going to
trade, what's the best way to execute a stock or ETF (NYSEARCA:VNQ)
order? A market order at current prices or a limit order at a
If you were to conduct a random survey of anybody on Wall
Street about what their definition of "good" trade execution is and
you're bound to get many different answers. For instance, to the
high-frequency trader or HFT, "good" execution would probably
mean anything that allows them to illegally front-run
other market participants without getting caught. Aside
from this illicit group, what about the rest of us?
For the buyer of individual stocks or ETFs (NYSEARCA:SCHB),
"good" execution might mean paying the lowest price on the bid/ask
offer. For the seller, it might mean getting the highest price.
While these conclusions are pretty obvious, there's a litany of
choices the individual investor must make.
Do you put in a:
Stop Loss Order?
Day Order or GTC?
To get the inside scoop about how investors with big trades ($10
million+) execute their orders, I also recently conducted an
in-depth interviewed institutional trader Andy McOrmond, Managing
Director @ WallachBeth who gave listeners to my weekly Index
Investing Show, some great tips about smarter trade execution. You
can listen to "
Execution Doesn't Happen by Accident
Beyond the above mentioned order choices, my latest video
for Trading Stocks and ETFs
" examines three aspects of trading that get overlooked: 1) Trading
at the open and the close, 2) Trading with odd-lot shares, and 3)
Trading with borrowed money, or margin.
Finally, the idea that long-term investors should buy-and-hold
(Nasdaq:VFINX) forever is utter propaganda. Even
the least active investor, will at some eventual point need to buy
and sell securities within their portfolio. Why? Because people's
investment time horizons are variable but never forever! That even
includes those of you who are fortunate enough to have the
life-expectancy of Methuselah.
In summary, what a person sows is what they reap. If you're
blindly entering stock and ETF orders (NasdaqGM:QQQ) without a
clear understanding of the consequences, you'll surely reap the
unexpected results of those decisions, which may not be to your
liking. On the other hand, by placing orders that conform to your
desired price, your overall strategy, and your execution time
frame, you'll be on your way to making savvier trades.
Ron DeLegge is the Founder and Chief Portfolio Strategist at
ETFguide. He's inventor of the
Portfolio Report Card
which helps people to identify the strengths and weaknesses of
their investment account, IRA, and 401(k) plan. Get paid $100 if
your portfolio scores an "A."