How to mitigate price fluctuations between placing a mutual fund sell order and it actually being executed?
How to mitigate price fluctuations between placing a mutual fund sell order and it actually being executed?
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Rab · External communityPost link
External question — Personal Finance Stack Exchange
Author: Rab
Original post: https://money.stackexchange.com/questions/125397
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
Adaptation: HTML converted to plain text; contact email addresses removed.
Just like many others, my wife and I make use of a DIY investment platform; a company who gives us the ability to buy different types of products (funds, ETFS, stocks, etc.) through a single entity.
When we sell exchange traded products, like stock or an ETF, we get a quote telling us at what price the transaction will be executed (if the market is open). If we don't like the current price, then of course we are not obligated to sell.
However when selling (non-exchange traded) mutual funds, the settlement price isn't made available before executing. We can see the T-1 NAV; we then request to place a sell order. The order sits there and then at T+2 gets marked as "priced", when the price per share is allocated. So we're effectively entering into a binding contract to sell (the order cannot be cancelled once marked as priced, can only be cancelled over the phone, and there's no guarantee it cancelled before that stage), without knowing the price at which the product will be sold.
Ordinarily this price difference is very little; these are not risky leveraged products or suchlike. Plus it's not something we do incredibly frequently; these are mutual funds, we're not day trading. However with recent volatility and given investors are often "spooked"; an entire index can take a "dip" only to come back up a few days later. As a result a sale transaction can be locked into what is effectively, and involuntarily, a significantly discounted value.
Currently we only dare to switch funds in small amounts to mitigate loss when we're "hit" by one of these shock dips when a sale is going through. In addition we've shifted to some extent to holding ETFs (which instead potentially exposes us to liquidity risk) for anything we might envisage being a shorter-term investment.
Is there any other way to avoid this? How do others do to mitigate risk in this situation? It just doesn't seem "right" that investors are forced into a contract at an unknown price. Or am I just being stupid and I've misunderstood the entire process? Is there some lesser-known additional service about which I don't know, where possibly issue a minimum sale price may be ordered?
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Quoted from Forex.com.bd-Editorial External question — Personal Finance Stack Exchange Author: Rab Source score (net votes, not local likes): 1 Original post: https://money.stackexchange.com/questions/125397 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Just like many others, my wife and I make use of a DIY investment platform; a company who gives us the ability to buy different types of products (funds, ETFS, stocks, etc.) through a single entity. When we sell exchange traded products, like stock or an ETF, we get a quote telling us at what price the transaction will be executed (if the market is open). If we don't like the current price, then of course we are not obligated to sell. However when selling (non-exchange traded) mutual funds, the settlement price isn't made available before executing. We can see the T-1 NAV; we then request to place a sell order. The order sits there and then at T+2 gets marked as "priced", when the price per share is allocated. So we're effectively entering into a binding contract to sell (the order cannot be cancelled once marked as priced, can only be cancelled over the phone, and there's no guarantee it cancelled before that stage), without knowing the price at which the product will be sold. Ordinarily this price difference is very little; these are not risky leveraged products or suchlike. Plus it's not something we do incredibly frequently; these are mutual funds, we're not day trading. However with recent volatility and given investors are often "spooked"; an entire index can take a "dip" only to come back up a few days later. As a result a sale transaction can be locked into what is effectively, and involuntarily, a significantly discounted value. Currently we only dare to switch funds in small amounts to mitigate loss when we're "hit" by one of these shock dips when a sale is going through. In addition we've shifted to some extent to holding ETFs (which instead potentially exposes us to liquidity risk) for anything we might envisage being a shorter-term investment. Is there any other way to avoid this? How do others do to mitigate risk in this situation? It just doesn't seem "right" that investors are forced into a contract at an unknown price. Or am I just being stupid and I've misunderstood the entire process? Is there some lesser-known additional service about which I don't know, where possibly issue a minimum sale price may be ordered?
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