Last Updated on 14 March, 2021 by Samuelsson
Recently, there has been a surge in the trading of ETFs due to the vast benefits that come with it, and many online brokers have added the asset to their offering. But how do you know the broker to choose for trading ETFs? That is what this article is meant to answer, but first, let’s find out what ETFs are.
What are ETFs and why invest in them?
An exchange-traded fund, ETF for short, is a basket of assets that is traded as a single unit, but unlike mutual funds that are traded at the end of the trading day, an ETF is traded throughout the day — just like stocks. Exchange-traded funds (ETFs) can consist of stocks, bonds, currencies, and/or commodities, and they tend to track a specific market or sectoral index.
ETFs are attractive investments because of the following reasons:
- They offer an easy way to buy into a diversified portfolio, with tax efficiency, price transparency, and potentially attractive returns. Some investors use them to hedge risks.
- Exchange-traded funds can be bought and sold at the current market price at any time throughout the trading day. They can be easily acquired, held, and traded.
- ETFs offer reasonably low-costs since they are mostly not actively managed; an ETF does not have to maintain a cash reserve for redemption, and as such, no brokerage expenses are incurred. Moreover, most brokers offer commission-free ETFs.
How to choose the best online broker for trading ETFs
Choosing the best online trading broker often depends on the investor’s priorities. However, several factors should be considered when choosing the best online broker for trading ETFs. These factors include:
With the increasing popularity and as a variety of ETFs keeps flooding the financial markets, regulators across the globe are working to ensure that measures are in place to adequately communicate risks and costs while also implementing an up-to-date compliance practice for ETFs. It is, therefore, important to check whether your potential broker is fully licensed to trade ETFs.
The majority of ETFs are registered with the Securities and Exchange Commission (SEC) as investment companies under the Investment Company Act of 1940, whereas the shares they offer to the public are registered under the Securities Act of 1933.
Margin requirements for trading ETFs
Buying ETFs on margin can be likened to shopping with credit cards, as it allows you to spend more than you have in your wallet. ETFs have the same margin requirements as normal stocks, which is 50% of the purchase price, while 25% is required as the maintenance margin.
A broker’s initial and maintenance margin may vary, and they normally depend on a large number of factors, including the investor’s country of residence, the type of underlying asset being traded ETFs, and many more
A trading platform is what the broker uses to get your orders and transmit them to the exchange. And since everything is done electronically, you can send your orders from anywhere you are. Brokers provide different platforms for trading ETFs, and they are usually available in the desktop, web, and mobile versions.
To choose the best online broker to trade ETFs, you need to check the features in the brokers’ trading platforms to be sure that you can comfortably perform your trading activities. A good trading platform should contain features like basic educational resources, comprehensive glossaries, newsfeeds, demo accounts, and more.
Commission and fees for trading ETFs
As you may know, ETFs trading is similar to stock trading, and as such, they are bought for a share price and are usually subject to the broker’s trade commission. Interestingly, most brokers offer commission-free ETFs. Therefore, to get the best out of your ETF trading, you should look for the best online brokers that offer commission-free ETFs.
Apart from the commission fees, there may be other fees charged by the broker, including account fees, inactivity fees, annual fees, trading platform subscriptions, and more. Most of these fees may not be completely avoided, but you can minimize them.
Deposit and withdrawal method
You need to consider the deposit and withdrawal methods offered by the best online brokers before proceeding to open an account with any of them. The method available for deposits and withdrawals should be flexible, popular, and easy to use. Also, the processing times should be short —at most 2-3 days.
It is necessary to have easy access to the broker’s customer support team whenever you have any need to contact them. Hence, when choosing the best broker for your ETFs trading, you should ensure that the broker offers a knowledgeable customer service team. The customer service team should be multilingual, and there should be convenient and flexible ways to contact them.
As the world has become a global village, it may be necessary to check whether your potential ETFs broker has an international presence in multiple countries. Having an international presence also means that the broker has access to different ETFs quoted in different markets around the world.
Due to the high demand and competition in the online brokerage industry, new brokers are entering the market every day with exciting offers. But it would be safer to trade with an experienced broker that has been around for at least 2 years. This is because a broker that is new in the business has not been tested and trusted, and it may not have all the necessary experience to survive in the market.
Best online brokers for investing in ETFs
Many online multi-asset brokers offer all forms of assets, but here are the best online brokers for ETF investing:
- Interactive Brokers
- Charles Schwab
- Fidelity Investments
- TD Ameritrade
- Vanguard Group
- E-Trade Financial
- Merrill Edge
- Ally Invest
TradeStation is a Florida-based brokerage firm that caters to the trading needs of both retail traders and experienced active traders. The broker is regulated in multiple jurisdictions — the Financial Conduct Authority (FCA), Financial Industry Regulatory Authority (FINRA), Securities and Exchange Commission (SEC) — and ensures optimum compliance with these regulatory bodies. Traders also get access to over 233 financial instruments across different asset classes, including stocks, options, futures, ETFs, mutual funds, bonds, and cryptocurrency, and of them are offered commission free. Other key features of the broker include the following:
- Trading platform: The broker provides traders with the TradeStation trading platform, an advanced trading platform that is developed for trading the multiple financial instruments offered by the broker. The platform is fully customizable and has built-in charting indicators.
The platform is available as a desktop platform for Windows and Mac computers and a web. There is also the mobile app that can be downloaded from the Apple Store or Google play store and used to place trades even while on the go provided there is an internet connection.
- Account minimum: The account minimum depends on the pricing plan chosen: the account minimum for the TS Select is $2,000. For the TS Go, the account minimum: $0.
- Commission and other fees: TradeStation offers two major pricing plans. This means that traders can choose the pricing plan that suits their capital. They include the TS Select, which charges $0 commissions for stock and ETF trades but requires you to pay $0.60 per contract for options trading and receive access to all the broker’s trading tools, such as OptionsStation Pro and Portfolio Maestro. Also, the TS GO charges $0 commissions for stock and ETF trades, competitive with major brokers. With this plan, options trades cost $0.50 per contract.
- Customer support: With more than 30 years of industry experience, TradeStation offers top-notch customer support service to their global clientele. The customer support team is available from Mondays to Fridays during working hours and can be reached via the following contact channels: telephone, email, Live Chat, and social media.
Interactive Brokers is an established online trading broker that operates on over 135 international markets in 33 countries globally. They provide direct online trade execution and clearing services to institutional and professional traders. Clients get to trade their desired asset class, including ETFs, stocks, options, futures, forex, and more, through an advanced trading platform, and some assets are offered commission free. The top highlights of Interactive Brokers include:
- Trading platform: Trades are carried on the sophisticated Trader WorkStation (TWS) trading platform, which is the broker’s flagship desktop platform that is designed for active traders and investors who trade multiple products and require power and flexibility. The Trader Workstation offers access to over 100 order types and algos. There is also the web application that serves as a one-stop destination to check quotes and place trades, check account balances, monitor P&L and key performance metrics, funding, reporting, and more. Traders who would want to place trades easily on their mobile handheld devices can also download the IBKR mobile trading platform from the relevant app stores and use it to manage their trading accounts and place trades even when on the go, as long as they are connected to the internet.
- Account minimum: The IBKR Lite plan requires no account minimum.
- Commission and other fees: The broker has two pricing plans, namely: IBKR Lite and IBKR Pro. The IBKR Lite offers zero commissions on US-listed stocks and ETFs, while the IBKR Pro gives clients access to the SmartRouting system, which provides $0.47 per share price improvement.
- Customer support: Interactive Brokers offer a professional customer support team that is polite and prompt in response. They are always available to respond to clients’ trading inquiries via telephone, email, Live Chat, online forms, and social media.
Charles Schwab is a full-service investment firm that has been in operation since 1971. They are built with the technology that can suit a wide variety of investors, from novice investors to more advanced traders. The broker offers a $0 account minimum and provides traders with sophisticated tools and educational resources for trading stocks, options, and exchange-traded funds. Charles Schwab has a lot of interesting features, including the following:
- Multiple Trading platforms: The broker provides traders with various easy-to-use trading platforms that are all freely available to all types of clients. They include the StreetSmart Edge, which is the broker’s flagship platform that is available as a desktop application for Windows and Mac computers. The StreetSmart Edge has a suite of programs called StreetSmart Central for options trading. There is also a web platform that can be directly accessed from the schwab.com website. The broker also offers mobile trading apps that are available on either the Schwab or StreetSmart Mobile apps.
- Account minimum: Charles Schwab offers low-cost index funds and ETFs with no account minimums or maintenance fees.
- Commission and other fees: Since October 2018, Schwab has been offering commission-free ETFs, stocks, and options.
- Customer support: The broker has a client support team that is always on hand to answer some of the trading inquiries that clients may have. They are available Mondays to Fridays — 8 am to 5 pm — and can be contacted through telephone, email, 24/7 Live Chat.
This is one of the leading online brokers in the United States that are designed to serve the vast majority of individual investors. For the average, buy-and-hold investor, Fidelity’s well-rounded platform offers a wide selection of tools, research, and resources coupled with easy order entry. For more active investors and full-on traders, Fidelity offers Active Trader Pro, a downloadable program with streaming data and a customizable trading interface for an improved user experience. Fidelity also offers commission-free ETFs as well as other advanced features including the following:
- Trading platform: Traders are provided with multiple trading platforms to suit their trading needs and styles. They can choose to trade on the desktop, mobile, or web platform. The desktop platform is known as the Active Trader Pro; it provides all the charting functions and trade tools upfront. It is customizable; hence it covers all the bases on what a trader needs and allows you to shape it how you want. The mobile platform allows you to trade stocks, ETFs, options, and mutual funds on the downloadable mobile app. It is comprehensive, with nearly as extensive a feature list as desktop, and full functionality to do most of what investors and traders need to do in terms of workflow. The web platform is packed with quotes, charts, and watchlists, and it is best suited for the less active traders, who are mainly looking to buy and hold their securities.
- Account minimum: The account minimum at Fidelity is $0.
- Commission and other fees: The broker offers commission-free ETFs, while a commission fee of $0.65 per contract is charged on options trading.
- Customer support: Fidelity allows clients to channel all their trading inquiries to a knowledgeable client support team that can be reached 24/7 through telephone and online Live Chat with a human agent.
TD Ameritrade is a US-based online full-service broker that delivers the ultimate trading package, offering a $0 minimum investment requirement and standout features, including extensive research and data, portfolio-building guidance, $0 commissions for the stock, options, and ETF trades, and reliable customer service. The top highlights of TD Ameritrade include:
- Trading platform: TD Ameritrade provides traders with a sophisticated trading platform that is known as the ThinkorSwim; it is available in two versions: desktop and web ThinkorSwim platforms. The desktop platform is a professional level platform that is built with advanced tools to perform analyses and test strategies, onboarding tools, and fully customizable software. The ThinkorSwim web has an intuitive interface with pre-configured strategies that allow you to set up trades in just a click; it is web-based, and as such, it can be accessed from anywhere provided there is an internet connection. TD Ameritrade also offers another web-based platform that can be accessed directly via TDAmeritrade.com. The broker also has a choice of two advanced mobile trading apps known as the TDAmeritrade mobile and the ThinkorSwim mobile.
- Account minimum: The minimum amount that is required to open an account with TD Ameritrade is $0.
- Commission and other fees: TD Ameritrade offers commission-free ETFs trading. Also, the broker recently scrapped its short-term trading fee of $13.90 for trading out of an ETF after less than 30 days.
- Customer support: TD Ameritrade’s client support team is always available to assist traders with any general, technical, or account-based inquiries that they may have.
Established in 1983, Vanguard is an online trading broker that offers the best ETFs trading experience at no cost. In 2001, the broker launched its first ETF and is reputed for being the best low-cost fund provider. Later in August 2018, Vanguard pushed the boundaries of retail investing by making about 90 percent of all ETFs on its platform commission-free.
Let us explore other features of Vanguard:
- Trading platform: Vanguard provides traders with web and mobile trading platforms for trading the various available financial instruments. However, the website is obsolete as it can be compared to the standard as of 2013, although there is a redesign in progress to make the screens and user interface more modern. The web-based platform is best suited for traders who are looking to simply buy and hold their assets while slowly putting their portfolios together. The mobile app is relatively user-friendly and allows you to place trades from anywhere and at any time. It is available for free download from the relevant app stores.
- Account minimum: The minimum amount that is required to open an account with Vanguard is $0.
- Commission and other fees: Since January 2020, the commissions for stock and ETF trades are $0. However, while there is no per-leg commission on options trades, per-contract commissions are $1. Mutual fund commission for funds outside the No Transaction Fee program is $50 ($40 for clients with $500,000–$1 million).
- Customer support: The broker responds to clients’ inquiries through its professional customer support team that is available via mobile telephone — 8 am to 8 pm (Mondays to Fridays) — or by sending a short secure message through the broker’s website.
E*Trade is an online retail broker that allows traders to trade stocks, ETFs, and options with zero commissions. They provide traders with a library of educational resources, a professional-level trading platform, and tools to help them assemble a risk-appropriate and balanced portfolio. The broker is designed for beginners and experienced traders alike. The key highlights of E*TRADE include:
- Trading platform: The broker provides traders with the E-Trade web and Power E-trade trading platforms. The E-Trade Web platform features free streaming market data, free real-time quotes, analyst research stock screeners, live market commentary, and more. You can track your accounts, create watch lists, view market data, and make trades from the dashboard. On the other hand, The Power E-Trade is suitable for highly frequent traders. It offers real-time data, over 100 technical studies, more than 30 drawing tools, streamlined trade tickets, customizable options chain views, and trading ladders. Both the E-Trade and Power E-Trade trading platform have mobile apps that are designed for Android and iOS devices. There is a downloadable platform, E*TRADE Pro, for advanced traders that can be customized extensively and is intended to be used on a desktop computer.
- Account minimum: The minimum amount that is required to open an account with E-Trade is $0.
- Commission and other fees: The broker removed its former high commission rate of $6.95. So, it now charges $0 for online stocks, options, and ETF trades. However, options still carry a reduced contract charge of $0.50 to $0.65, depending on the volume.
- Customer support: E-Trade provides a knowledgeable client support team that can be contacted through a 24/7 phone line with access to brokers as well as to retirement specialists, financial consultants, active trader consultants, and product specialists. Also, traders with larger accounts qualify for priority service, upon request, and can use a phone line that is answered very quickly. Financial consultants are also available in E*TRADE’s physical branches for face-to-face assistance.
Launched in 2010, Merrill Edge is an online broker that has continued to develop by making a deeper connection between the online brokerage and the broad banking capabilities of the Bank of America. The broker allows you to trade ETFs with zero commissions. The broker gives you access to search for a wider variety of ETFs using predefined screens, such as Morningstar 5-star stocks, though these screens don’t return as much as data on the fund immediately but click through and you’ll find details all laid out in an easy-to-digest format, including the fund’s top holdings, performance, ratings, and key statistics. Other top features of Merrill Edge include:
- Trading platform: The broker offers a consistent and straightforward trading experience through its various trading platforms, including the Merrill Edge, Market Pro, and mobile apps.
- Account minimum: The minimum amount that is required to open an account with Merrill Edge is $0.
- Commission and other fees: Merrill Edge charges no commissions for online equity, ETF, or OTCBB trades. There is no per-leg commission on options trades. Per-contract commissions are $0.65.
- Customer support: The broker has a client support team that is always on hand via telephone and online chat to answer some of the trading inquiries that clients may have.
Formerly known as TradeKing, Ally Invest is a great choice of broker for clients who are already trading with Ally Bank. With Ally’s screener, you’ll be able to search for funds by predefined screens such as tech ETFs or S&P 500 index funds. And you’ll get performance data, Morningstar ratings, and top holdings data for each fund.
- Trading platform: Ally invest offers a web-based platform that is known as the InvestLive and a mobile app. On the Live platform, clicking the “QuickTrade” button opens up a simple trade ticket that you can use for stocks/ETFs or options. You can only trade equities, options, and mutual funds on the mobile app; all fixed income trades must be done on the website or InvestLIVE.
- Account minimum: The minimum amount that is required to open an account with Ally Invest is $0.
- Commission and other fees: Ally Invest offers commission-free trading on ETFs.
- Customer support: The broker’s client support team is always on hand to respond to traders’ inquiries through telephone and online chat.
Stash was launched in 2015 and has since grown into an established retail broker with over 5 million users. Stash is a personal finance app that simplifies investing, making it easy and affordable for everyday Americans to build wealth and achieve their financial goals as it enables them to perform personal finance reviews and plan their investments. With Stash’s fractional shares and other investing and saving tools, like the Stock-Back Card, anyone can invest in the stock market for $5 or less.
- Trading platform: Stash has an advanced mobile app that is available on the iOS and Android app stores. There are also desktop and web versions. However, most of the features, such as the credit card feature, are only available on the mobile app.
- Account minimum: The minimum amount that is required to open an account with Stash is $5.
- Commission and other fees: Stash plans are simple, transparent, and start at just $1/month with no hidden fees.
- Customer support: The client support team is always available via telephone and email to assist traders with any general, technical, or account-based inquiries that they may have.
Founded in 2008, Betterment is one of the pioneers in the Robo-advisory industry and is one of the first to use technology to recommend a portfolio and automate the investment process.
- Trading platform: Betterment’s platform is intuitive, user-friendly, and full of educational resources, making it our top choice for beginners. It also offers tax-loss harvesting for all accounts, no matter the size, and a range of checking and savings account options, making it a top choice for cash management. The trading platform is available on the desktop, web, and mobile versions.
- Account minimum: The minimum amount required to open an account with Betterment is $0.
- Commission and other fees: the broker charges a fee of 0.25% per year in management fees, which increases to 0.40% per year for the premium plan.
- Customer support: Client support service is available by email and phone from 9 a.m. to 6 p.m. Eastern time, Monday to Friday, and via email only from 11 a.m. to 6 p.m EST on Saturday and Sunday. Existing clients can also chat with the client service after logging in.
Wealthfront offers fully digital investing for a very competitive price. The broker offers the full package of goal-setting, planning, banking, and investing in an elegant, user-friendly platform. Wealthfront has continued to improve its offering over the past years.
- Trading platform: The broker has an advanced trading platform that is available in the desktop and mobile versions.
- Account minimum: The minimum amount required to open an account with Wealthfront is $500.
- Commission and other fees: The broker charges annual management fees of 0.07%–0.16% on the ETFs.
- Customer support: Wealthfront’s client support team is always available to assist traders with any general, technical, or account-based inquiries that they may have.