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Limiting bid-ask spreads

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Clients in exchange-traded funds can’t avoid the trading cost caused by “bid-ask spreads” – the small premiums they pay every time they buy and sell. But the Wall Street Journal suggests placing a limit order as one way to limit the ETF spread. The downside? According to the paper, if not very many people are willing to trade on those terms, the order may sit a while. Investors who aim to save five or 10 cents a share may regret the move if prices change by a dollar before they can buy all of the shares they want. One solution is to qualify the order, offering to trade shares a penny or two outside the bid-ask spread, but demanding that the buyer take the entire trade.