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I'm investing some money in ETFs; buy and hold. My local currency is CHF.

I have an account in Interactive Brokers. So far I've operated on the London Stock Exchange, which means I have to do a forex operation to buy GBP, which means fees. The ETFs I'm buying are also listed in the Swiss Exchange. I could buy them there and not pay fees.

But what worries me is volume: LSE is much higher volume than SIX. I have a vague idea that this affects the spread, but given that I operate infrequently (~once a month) and at low volumes (~tens of shares at a time), would this have any negative effect for me in practice?

In general, is there a rule of thumb about the minimum volume where you should operate? Something like "don't trade if the average daily volume is less than 10x your volume"?

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Some liquidity

Since you're using IB, and you seem to be an investor not a trader, so you won't notice especially if you walk your orders, but you will suffer the bid/ask spread as everyone else albeit wider.

If buying, the best strategy unless if one is time constrained is to walk the entire bid from the best bid to the best ask. It is highly likely that someone will hit your order before you hit the best ask. If they don't, as a long term investor, the few pennies won't make or break you, especially if the price per share is 100 USD equivalent, but it is an excellent habit to form and fun.

Since you're buying ETFs, even though your orders are small, you would be adding liquidity to your market, helping it become more efficient because your orders could be used to arbitrage against all of the ETF's holdings, in turn providing liquidity for those holdings.

No liquidity

This could only be done with an extremely low cost broker like IB because the trading commissions would make it prohibitively expensive.

There are huge risks when trading an illiquid security such as VEUR. EWL would be much less risky thus less expensive.

Securities with no liquidity can be traded, but they must be traded very carefully. In the case of a security that can only attract about 20 shares per day in volume, only single shares should be bid. The market makers, suffering from a dearth in volume may not even be willing to haggle; therefore, the only recourse is a statistical arbitrageur, who will attempt to profit from the spread between other more liquid versions of the security.

Considering the available alternative, VEUR is not recommended to trade.

  • Thanks for your reply. I think I understand what you're saying, but what is "walking"? I can't find any references. You mean matching some specific bid/ask exactly with my order instead of letting the exchange match against multiple orders? – ggambett Feb 23 '14 at 14:28
  • @ggambett No, the exchange and brokers still do all the heavy lifting. For example, if you're buying, you try to match your bid with the best bid then you move it up a tick and wait. If other bids crowd out your order or you aren't filled after some time that you choose, move it up a tick again. Usually, your order will be filled before you hit the ask. If not, it's not the end of the world, but on average you'll have slightly better prices and get to have a little fun playing market maker. – user11865 Feb 23 '14 at 14:38
  • Oh, got it, thanks. So there are no other significant downsides for trading something as low volume as google.com/finance?q=SWX%3AVEUR&ei=iR4KU7CfGqWPwAP97QE ? – ggambett Feb 23 '14 at 17:44
  • @ggambett Edited to reflect that very relevant fact. Thank you for adding it! Please note my profile & edit. – user11865 Feb 23 '14 at 17:56

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