Before You Trade a Stock, ETF or Mutual Fund, Know This!

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“Friends doesn t tibbets over at jazz wealth. I think was yesterday. He did a a wonderful video on how fidelity and others charge no commissions and no fees for of the ets. It was incredibly enlightening.

I cannot recommend you watch that video enough he talks about the difference we d bid ask in the spreads and market orders. And what not enough. I think dozens at read or by by nature. So he knows how trading works and uh and how you can really get taken advantage of if you re not if you re not paying attention to the bit as prices.

Anyway. So i definitely highly recommend you watch that video from dustin because it s uh. It s it s it will open up your eyes a lot to some of the stuff and uh. It s important to know to the bid.

Ask price now the old days used to being 8cm be twelve and eight twelve and you know three fifths or something that and now it s just by penny and while that might not seem like much putting a market order in what you re saying is you re saying. I will accept whatever someone is willing to sell the thing to me so if i m trying to buy something and i put a market order in i don t accept whatever that person is willing to sell to me so you re oh you re essentially giving up your negotiating and the same thing. If you were trying to sell something you ll accept whatever someone s trying to buy it from you hat. And and that could be problematic.

Especially and if not there in a thinly traded market. The volume can determine the spread between bid and ask if you just put a market order to buy something there s not much of a market. There and there s someone could easily come in there and say alright look this guy wants to buy whatever price. I want to sell to it for this and then you re on the hook for that i mean.

That s what the market order is so yeah we so. Dustin s thing is it kind of talks about that how fidelity and these other firms can get away with if they re fee free by looking at the bid bid ass price and i think it s incredibly enlightening and you should watch that now i do want to say i m getting ready to buy because at ausa when you sell something that s at non us. A mutual fund you have to wait t. Plus 3i camera maybe the two plus one on mutual funds.

Misty plus. One so alas yes i sold by target retirement funds and i m gonna use the proceeds to buy a vtf like i did a video on that yesterday. Now. The thing is you got to wait for that money to settle to clear essentially.

If we can use it to put to another funded. It s been a long time saying. I ve used bt plus five now. I think it s t plus three.

And i think for a mutual funds of t..


Plus. One. But i don t look older than that either way. I can t i can t use the proceeds of my sale on my target fun until until it s settled so you only get t.

Plus. One or something like that alright so now go and buy a ticket. But i want it tell you how this works was selling a mutual fund versus selling an etf or trading. A mutual fund versus trading.

An etf alright so mutual fund state price once a day that s it so i can literally put a order in right now with x is 1015 easter time and it won t execute till. 4 00 pm. Today all right so i can put an order in to buy to sell and do whatever i want and but nothing has happened i will not get a confirmation of an execution until until the end of business. So that means if i put an order in today and as you know after all i m not i don t like that or i could go back and change.

It it s more i can put an order in today when the markets are way low. Think i m getting a little price when in terms of the market jump up because something trump did or the feds do or whatever. I was knows and then i m buying at a higher thing so basically a beautif under you re buying a market order except for the close of business. You have no clue.

What s gonna be and that s fine. I mean again market timing is a loser s game. But there are some state instances where market timing in terms of when to buy or sell at position makes sense. I ll share that here in just a second so that s how mutual funds trade they trade once a day that close the business so you can go back you can change you can do whatever you want once the close of business have occurs you bulk price again until 24 hours later so but you put an order in at 5 00.

Pm eastern time it won t execute till. 4 00 pm. Eastern time two following days that makes sense it s that s important know so it gives you some flexibility you know you re not gonna get you re not getting market you market price some because you don t know what the market is gonna trade you just had no clue you literally. When you buy or sell a mutual fund.

You have no idea. What you re gonna get for it none whatsoever. Now. Etf is like a stock all right so in etf with their three ticker and some etf have four tickers.

But mutual funds have five tickers. So you know if it s got five tickers by and large at old price once a day you have no clue. What you re gonna get for it. Etf is not like that or stocks aren t like that they trade instantaneously as long as the market is open so here s what i want to talk to you about never ever ever ever ever ever put an open market order.

The night before never ever ever do that alright..


So what that means is and this is what i m telling you i saw this happening. When i was at schwab on the trading desk back in the 90s. I think was yahoo you know people to put open market orders in you know the night before and then the the nighttime news would happen overseas news will happen and just kill things or make things whatever. It was and so your open market order says.

I m willing to pay anything to buy or i m willing to sell anything to receive anything to sell. But what happened on the open market orders. People say okay. It s six o clock at night.

I want to make sure i get a buy first thing in the morning when the mark is open so i m gonna put an open market order for you know two hours let us just say and we ll say you re 200 shares was you know ten bucks. So whatever that is two thousand dollars or something like that i m so you good buy 200 shares at 210 bucks that s 200 you can put an open market order at 5 00 pm. Eastern time on tuesday well you know it doesn t execute until 9 00 am. The following day.

Now. Let s say. The overnight news was very very good for yahoo. And it works.

And it wakes up and now the open price is 30. Bucks. A share okay well you got that open order to buy a hundred two hundred shares now at 30 bucks a share even though the night before you thought. It s only gonna be ten bucks.

This year. Does that make sense so now you got come up with six thousand dollars cash as opposed to two thousand is that dramatic yes. Absolutely. Sir mac will that happen often no not that an extent.

But it can happen it happens a lot and it did happen back in the late 90s and early 2000s. Happen all the time now the same thing goes on a cell. Let s say you have a sell order and opus celerity say man. I just i want to i want to liquidate this as soon as i can so use the money for whatever you put an open order.

The after market numbers after market trades. The after market news and scuttlebutt comes down and your yahoo shares drop. Because what s that marissa whatever name is she just was hired as ceo. When everyone s like why we hired her so the aftermarket news trades.

It and now you thought you re gonna get 30..


A share on the sale when in fact. You only get 20 a share on the sale and you re like man. I ve already spent that money you know that 20 shares are 200 shares at 30 bucks. But you re only gonna get 200 shares gonna sell at 20 bucks.

Because you put an open market order. So don t do that but mutual funds. There s it s whatever be it open market or i mean. It s just how it works with stocks and etfs.

So it s not like that with stocks and etfs. You say an open market. You know it ll be just whatever the prices when the minute they receive your your bid or your ask the bid is your you re willing to buy something i m bidding on your i m willing i m bidding on your home essentially so i m bidding on your stock. What would you pay for me for your stock.

I ll put a bit in on the sale. You re asking what will someone pay for your home. That you own well i ll be interested in selling it but give me a bid. So i asked for this you could be a bit si.

Words and there s a spread and so that spread is what determines ultimate price in terms of what you pay so if you put in a an ask at 10 and you say i m willing to take whatever anyone gives me and then something that the following day. So i said hello you want 10. I ll give you you know i ll give you 6 for it and you already said you ll take whatever it sounds like it s a fire sale for you and you just did it a big difference. That s that s not good that s not good and that happens and trust me.

It s the not the institution s are on the wrong side of that trade. It s you the mom and pop. Who are about how this works and so don t ever put an open order. And then you can go back to see the other people who do that and they say or market order.

I should say they say oh man. I got killed well you got killed because the institutions knew that you re willing to get killed because of your ignorance and they re gonna exploit that for all it s worth so don t do that so what you want to do is either just wait until the following day before you decide if you want to make that trade happen and then put the market order right then or you just want to put a limit order alright. So limit or says. I m not willing to pay more or take less and a limit.

I will have a limit of 20 and if the stock goes down to 18. I m not gonna it won t execute. Because i will not accept less than 20 on my sale that makes sense that s a limit order the same thing on the up end. I m going to pay 20.

But i m not willing to pay 22..


So if the stock goes above 20. I m not willing to pay more than 20 that s my limit and that s a that s good that s what you want to put limit orders for me. I m just going in there and buy v. Tfbtv.

Today at what i don t care now. I good. The market. You know go 30 points against me in an index fund.

Which i mean for a etf. It has hundreds of shares in it no so i m not it s not gonna i won t let s just put this way. A market order in an open market order for a large position like a mutual fund or an etf. I should say that has been e many hundreds of holdings isn t going to most likely to go up and down drastically.

Like the example. I use with yahoo. But you still don t want to mess that don t be put in open orders market orders for anything the night before it s just that it doesn t make sense. I won t do that so i ll go in there.

Today. And i ll execute vtv you know by i mean well how much ever i got camera. But the price was i don t know whether to execution was when i sold my target retirement fund. But i always leave a little bit of cash 10 cash.

I ll put everything else into the to the tv. And i ll go ahead and execute a market order and then i ll be done with it. But that s how you trade that s what doesn t talks about this video about how the bid ass in the spread pace. And how can really be used against you if you re not careful for sure because they get the orders banned these guys get they know what s coming down the pike.

They know they can see you can see the bid ass out there if you want to get that goat. I don t think you need a bloomberg terminal. I forgot it s been so long so i looked at this stuff. But you can see the orders that are coming in and you can see yeah i matched that order and you sell your shares.

We say yeah i ll match that buy and i ll buy my shares. But if you don t see it you just going on the good graces of the stock market man think again so watch that video think about how you execute your trays. I ” ..

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