WealthHow to Buy and Sell an ETF: Order Types and the Bid-Ask Spread
The Market Order: Simple, But Not Always Optimal
A market order is the simplest option: you ask to buy (or sell) the ETF immediately at the best price currently available on the market. Execution is essentially guaranteed — but the exact price is not.
For a highly liquid ETF like XIU (iShares S&P/TSX 60, listed in Toronto) or XAW, the gap between the displayed price and the actual execution price will typically be tiny. But for a specialized or thinly traded ETF, you could end up paying a few cents more per unit than you expected. Not catastrophic on a small purchase, but on $10,000 that can add up to a few dozen wasted dollars.
When to use a market order: when you're buying a highly liquid ETF (high daily volume) and want quick execution without worrying about the price to the penny.
Lean MARKET ORDER if...
- You're buying a highly liquid ETF with high daily volume (e.g. XIU, XEQT)
- You want quick, essentially guaranteed execution
- You're not worried about the exact price to the penny
Lean LIMIT ORDER if...
- You're a beginner investor — this is the generally recommended default
- You want to control the maximum price you pay, with zero nasty surprises
- You're buying a niche or low-volume ETF where prices can move against you
- You can accept the order may not fill if the market never reaches your target price
The Limit Order: You Set the Rules
A limit order lets you set the maximum price you're willing to pay when buying — or the minimum price you'll accept when selling. Your order only executes if the market reaches that price.
Concrete example: the ETF shows an ask price of $28.05. You place a limit order at $28.00. If the price drops to $28.00 or below, your order fills. Otherwise it stays pending (or expires at the end of the day if you choose "day order").
- Advantage: you control the maximum price you pay. Zero nasty surprises.
- Disadvantage: the order may not fill if the market never reaches your target price.
For the vast majority of ETF purchases, a limit order is the practice recommended for beginner investors — it protects you from being caught off guard by a sudden price gap. You can learn more about how stock indexes work to understand what drives ETF prices.
| Large, liquid ETFs (e.g. XIU, XEQT) | Small, niche ETFs | |
|---|---|---|
| Typical bid-ask spread | $0.01–$0.02 per unit | $0.10 or more per unit |
| Hidden cost on 500 units | Negligible | $50, on top of brokerage commissions |
The Bid-Ask Spread: The Hidden Cost Nobody Mentions
Every ETF (like every stock) has two prices displayed simultaneously:
- The bid price: the highest price a buyer is willing to pay.
- The ask price (or offer): the lowest price a seller will accept.
The bid-ask spread is the difference between these two figures. If the bid is $27.98 and the ask is $28.02, the spread is $0.04. If you buy at the ask and immediately sell at the bid, you lose those $0.04 per unit — even if the market hasn't moved.
For large ETFs like XIU or XEQT, this spread is often $0.01–$0.02 — negligible. But for a small niche ETF, it can reach $0.10 or more per unit. On 500 units, that's $50 in hidden costs, on top of brokerage commissions. This is why limit orders are especially useful with less-liquid ETFs: you avoid accidentally paying the full ask price.
| Time window | What's happening |
|---|---|
| 9:30 a.m. ET (market open) | Market in flux — market makers widen bid-ask spreads |
| 3:50–4:00 p.m. ET (before close) | Market in flux — market makers widen bid-ask spreads |
| Wait 15–30 min after the open | Recommended: spreads have settled down |
| Avoid the last 10 min before close | Recommended: avoid the widened closing spread |
Avoid the First and Last Minutes: Spreads Widen at Open and Close
At the Toronto Stock Exchange open (9:30 a.m. ET) and in the final minutes before close (around 3:50–4:00 p.m. ET), the market is in flux. Market makers — the intermediaries who commit to buying and selling to maintain liquidity — widen their bid-ask spreads during these volatile periods to protect themselves against rapid price swings.
The practical takeaway: if you place a market order at 9:31 a.m., you risk getting a worse price than if you had waited until 10:30 a.m., when things have settled down. The simple rule: wait at least 15 to 30 minutes after the open before placing your order, and avoid the last 10 minutes before the close. This tip is highlighted by GetSmarterAboutMoney (Ontario Securities Commission) for investors buying ETFs.
That doesn't mean you need to watch the market minute by minute — a long-term investor buying an index ETF once a month doesn't need to obsess over timing. But if you have a choice, mid-session is generally better.
T+1 Settlement: Your Money Doesn't Move Instantly
When you buy an ETF, the trade is confirmed immediately — but settlement (the actual transfer of money and securities) takes one business day after the trade date. This is called the T+1 cycle (Trade date + 1 day).
In practice, this means:
- You buy on Monday → your account is debited and the ETF units are officially yours on Tuesday.
- If you sell an ETF, the proceeds will be available for another purchase or withdrawal the next business day.
Canada moved to T+1 in May 2024, in sync with the United States, to reduce counterparty risk in the financial system. For you as an individual investor, the impact is minimal — your broker handles it automatically. But if you sell an ETF on a Friday to fund another purchase, know that the proceeds won't technically be settled until the following Monday.
Frequently asked questions
Can I actually lose money just from the bid-ask spread?
Technically yes: if you buy at the ask price and immediately sell at the bid price, you pocket a small loss equal to the spread. In practice, for a long-term investor holding ETFs for months or years, that spread is negligible compared to potential gains. It matters most if you're buying and selling frequently.
What happens if my limit order doesn't fill?
The order stays pending until the target price is reached, or until the expiry you set (usually "day order"). At market close, any unfilled order is automatically cancelled. You can simply re-enter it the next day if you still want to buy.
Is there a difference between buying a Canadian ETF and a U.S. ETF from a Canadian account?
Yes: U.S.-listed ETFs are priced in U.S. dollars. If your account is in Canadian dollars, your broker will convert the currency (with exchange fees). Some brokers offer USD accounts to avoid this conversion. The principles of market and limit orders apply exactly the same way.
Should I always use a limit order for ETFs?
For large, highly liquid ETFs (XIU, XEQT, ZAG…), a market order is generally fine. For niche or low-volume ETFs, a limit order is preferable to control your purchase price. When in doubt, a limit order is the safer default.
Sources & references
Educational content; verify figures with official sources before acting.