Is buy-sell spread a big part of the cost of trading? [Australia]

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Jaymover
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Is buy-sell spread a big part of the cost of trading? [Australia]

Post by Jaymover »

This may seem like a stupid question but people say things like "trading is so cheap now", "it's practically free to buy and sell". Yes $5 a trade (I trade in ETFs, mostly rebalancing moves). However it seems like the buy-sell spread can be pretty expensive when you sell some ETFs to buy some other ETFs.

Am I wrong? I notice the spread most with one of my thinly traded ETFs. It makes me hesitant to trade at all, which is a good thing.
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David Jay
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Re: Is buy-sell spread a big part of the cost of trading?

Post by David Jay »

Don’t mean to be rude, but why are you trading in thinly traded ETFs? What advantage do you believe you are getting from them that can’t be obtained in more widely traded issues?

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TropikThunder
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Re: Is buy-sell spread a big part of the cost of trading?

Post by TropikThunder »

Jaymover wrote: Fri May 14, 2021 10:42 pm This may seem like a stupid question but people say things like "trading is so cheap now", "it's practically free to buy and sell". Yes $5 a trade (I trade in ETFs, mostly rebalancing moves). However it seems like the buy-sell spread can be pretty expensive when you sell some ETFs to buy some other ETFs.

Am I wrong? I notice the spread most with one of my thinly traded ETFs. It makes me hesitant to trade at all, which is a good thing.
It's only a big cost if you buy and sell thinly traded ETF's. The higher volume "mainstream" ETF's like VTI and VOO routinely have bid-ask spreads ~1 cent.
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Jaymover
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Re: Is buy-sell spread a big part of the cost of trading?

Post by Jaymover »

Don’t mean to be rude, but why are you trading in thinly traded ETFs?
Oh I ended up buying some Vanguard ethical diversified bond etfs (VEFI). Hopefully it picks up in popularity over time. I will stick with them as they just sit there.
It's only a big cost if you buy and sell thinly traded ETF's. The higher volume "mainstream" ETF's like VTI and VOO routinely have bid-ask spreads ~1 cent.
All Vanguard but on the Australian Stock market. I guess our market is smaller so the spreads are larger. Eg VAS buy sell spread is .06 percent


Maybe the mega traded ETFs in the US have got their spreads down to practically zero. Actualy .01%.

So on a $5K trade
VTI 50 cents
VAS 3 dollars
VGE 11 dollars

I also believe that the spread amplifies dramatically when the market is choppy.

So if you sell out of one obscure etf and buy into another obscure etf it could cost you $40 all up (I pay $10 per trade) which is close to 1 percent loss on $5K. That is a big loss.

So learnings already?
  • Buy the most popular etfs within the market you are trading in
  • Keep things simple, don't tilt into obscure ETFs as the buy sell spread might eat up any benefit
  • Dont trade more than is necessary, especially if you hold obscure ETFs for some reason
  • Dont trade in volatile conditions if you can help it
dsasdg
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Re: Is buy-sell spread a big part of the cost of trading?

Post by dsasdg »

What a crazy financial market in Australia :D
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Re: Is buy-sell spread a big part of the cost of trading? [Australia]

Post by LadyGeek »

This thread is now in the Non-US Investing forum (non-US market). I have also added the OP's home country to the thread title.

(Thanks to the member who reported the post and explained what's wrong.)
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andrew99999
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Re: Is buy-sell spread a big part of the cost of trading?

Post by andrew99999 »

Jaymover wrote: Fri May 14, 2021 11:45 pm
Don’t mean to be rude, but why are you trading in thinly traded ETFs?
Oh I ended up buying some Vanguard ethical diversified bond etfs (VEFI). Hopefully it picks up in popularity over time. I will stick with them as they just sit there.
The ESG funds are becoming massively popular, and since it's a Vanguard fund, I expect it to grow enough such that the spreads narrow over time.
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Metsfan91
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Re: Is buy-sell spread a big part of the cost of trading? [Australia]

Post by Metsfan91 »

Jaymover wrote: Fri May 14, 2021 10:42 pm This may seem like a stupid question but people say things like "trading is so cheap now", "it's practically free to buy and sell". Yes $5 a trade (I trade in ETFs, mostly rebalancing moves). However it seems like the buy-sell spread can be pretty expensive when you sell some ETFs to buy some other ETFs.

Am I wrong?
You are not wrong. Indeed it can be expensive. Price fluctuation can add to the expense as well. Hence, Mutual Funds are better. There is no bid-ask spread and buyers get end-of-day NAV - net asset value of each share.
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andrew99999
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Re: Is buy-sell spread a big part of the cost of trading? [Australia]

Post by andrew99999 »

Metsfan91 wrote: Sat May 15, 2021 11:37 pm You are not wrong. Indeed it can be expensive. Price fluctuation can add to the expense as well. Hence, Mutual Funds are better. There is no bid-ask spread and buyers get end-of-day NAV - net asset value of each share.
Not sure about the US, but mutual funds in Australia do have buy/sell spreads.
Also, besides the rare times market markers are not doing their jobs (generally first or last 15 minutes of the trading day, which should be avoided), the reason for ETF's deviating from their NAV is because the NAV figure is off, not because the price of the ETF is off. There were a number of threads on this forum last year during the high volatility around C19 about it.
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