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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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    Are you sure the price is settled at T+2? I know for Schwab (and I assume most other brokerages) if you place the sell order before the end of the trading day the sale is priced later that same evening. – Nosjack May 14 at 16:31
  • @Nosjack you know I've just had one go through at T+1. But ordinarily (after double checking my transaction history) it's T+2 - and not because of missing any time cutoff or anything - twice I've made an order made over the weekend (so effectively the clock started ticking at SOD Monday), then the pricing occurred on the Wednesday (in neither case was there any bank holidays or suchlike afaik). Same-day pricing would be fantastic - can I just check with you this is for a mutual fund? Is this in the US? (I'm UK based - I don't know if it's different). – Rab May 14 at 17:48
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    Possible that it is different for the UK, but I don't know why it would be. I agree than getting sell orders priced at T+2 would be a bad deal! I am in the US and have traded a handful of mutual funds and money market funds with Schwab, all executed at the end of the same day. – Nosjack May 14 at 17:54
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    Which country are we talking about? In the US, mutual funds are priced each evening after the close of markets and all trades (redemptions and purchases) submitted during that day (or days since the previous close market close in case a weekend intervenes) execute at the price thus determined. – Dilip Sarwate May 14 at 19:15
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    @ Rab - The prices of stocks and ETFs change repeatedly during trading hours. Mutual funds don’t trade in real time. Their NAV must be calculated at the end of the day and that takes some time since they must not only take into account the closing prices of its holdings but other assets as well (cash, receivables, accrued income, dividends, client redemptions). I suspect that you are confusing determination of NAV (pricing) with settlement which if T+2, is two days later. If that's not the case, someone is stealing your blind :->) – Bob Baerker May 14 at 22:06
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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.

I don't understand this description of a T-1 NAV and pricing at T+2. In the days when I invested and traded mutual funds, if I placed an order during market hours, the buy (or sell) price was the 4 PM NAV. Yes, there was some variance as to what the price of an executed order would be but in all cases, the execution price was at that day's NAV pricing not at T+2.

With Fidelity Select funds, they were priced hourly so I could guesstimate the 4 PM closing price by using the 3 PM pricing, watching the market for most of the last hour and then placing an order just before 4PM so that the price differential between expected and actual price execution was minimal.

If this is the issue that you are referring to then my suggestion is that you find a highly correlated ETF or index and do the same. If the ETF/index is up 1/2% near 4 PM closing then your expectation is that you'll buy your mutual fund 1/2% above its previous close.

If my interpretation of what you are asking is amiss then I'll delete this.

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  • Your interpretation isn't entirely correct, but it's helpful to gauge your perspective - the fact that you feel you had to interpret anything makes me think that what I'm saying is plain wrong. NB. I literally mean that you have yesterday's close price, make a sell order, then the order is marked as "priced" two whole working days later. As everyone seems to be finding this strange (including me; why I asked the question in the first place), I'm going to have a chat with a rep from the fund management platform. Thanks. – Rab May 14 at 21:32

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