The Open Price problem

[behemoth]

Hello,

I'm coming from FX trading but am in the process of developing a strategy for trading ETFs. My results look promising but I have an issue with the characteristics of the open price.

To clarify: I use the relative change of todays open to yesterdays open of several other ETF symbols to decide if to enter a trade on todays open in e.g. the SPY. Now some of the ETFs that I use to predict the target instrument with are quite illiquid. I observed that this has the effect that the open price of these symbols is not really the open price (at NY open time) but can sometimes be the price of the first trade of the day (sometimes as late as the time of the closing price!).

I assumed that no matter how liquid an instrument is, it always starts the trading day with an open price (at the time of the markets opening). If there are no trades to determine the open price with, then it is set by the price of the stocks in the ETFs basket. Can someone please verify or correct this assumption?

For my strategy to work I rely on an open price at the time of the markets opening for all symbols otherwise I'm afraid I introduce a look ahead bias since the "open price" is not really happening at markets opening but at some later time in the day.

I do not have an IB account or any other paid (=reliable) source of real time market data yet to observe what the price of an illiquid ETF (for eaxample: DWAQ) indeed is at the NY open.

I'd be gratefull if anyone could shed some light on this issue or maybe even has an idea on how to circumvent this "Open Price Problem"

Regards
behemoth

 

[toonerdy]

http://www.etf.com/etf-education-center/21025-understanding-net-asset-value.html?nopaging=1 , which I am not claiming is authoratative, just more likely to be right about this than I am, states:

"Distinct from an ETF’s official, once-a-day NAV [net asset value] is the intraday or indicative NAV (often called “iNAV”). This is a measure of an ETF’s intraday value, with the prices used in the NAV calculation updated for real-time market movements, and published several times a minute.

iNAVs are often calculated by third-party commercial data vendors and disseminated by Europe’s stock exchanges. Many stockbrokers offer their clients access to real-time iNAVs on ETFs, which can then be compared with ETF prices."

 

[HobbyTrading]

I assumed that no matter how liquid an instrument is, it always starts the trading day with an open price (at the time of the markets opening). If there are no trades to determine the open price with, then it is set by the price of the stocks in the ETFs basket. Can someone please verify or correct this assumption?

My understanding is that the "open price" is the price paid for the first trade of the day (or any other time period you're looking at).