Sponsors of exchange-traded funds continually blow our minds by announcing lower and lower fees, with expense ratios as low as 0.03%.
The “ask price” and the “bid price” are set by professionals called market makers. These financial intermediaries take the other side of buy and sell orders all day long. The asking price you’re required to pay to buy a share is always higher than the price you’ll be offered to sell it. The difference compensates market makers for the risk they take when holding a security until a buyer shows up. There’s nothing evil about this—market makers make instant buying and selling possible.
In the accompanying graph, the red columns on the right represent two securities. The Global X S&P 500 Covered Call ETF HSPX, -0.20% would have cost you 1.39% for each round trip. The second most costly product, an ETN called the UBS Enhanced Europe 50 FIEE, -0.02% imposed on you a bite of 1.23%.• Let’s say you buy shares of an ETF at $50.25, which is the “ask price.”• The difference is 50 cents per share. That’s the bid-ask spread.“Huh,” you might say. “1% is nothing.
Todd cautions that you can’t step into the same river twice. Spreads on exchange-traded products jump up and down all the time. Both HSPX and FIEE have lower spreads now than they did during Todd’s study. But the cost of their spreads today may still be higher than many investors would tolerate. • Be aware that spreads shown by brokerages with the typical 20-minute delay are only meaningful if viewed between approximately 10 a.m. and 4 p.m. Eastern Time. After that, brokerages may report spreads from after-hours trading. Liquidity after major markets close is limited, and bid and ask prices can soar.
Brian_Livin Best to stay in, I reckon! VTI