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Best ETF Brokers

By Christopher Lewis
Reviewer Adam Lemon
Fact-checker DailyForex.com Team
Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.

The DailyForex.com team is comprised of analysts and researchers from around the world who watch the market throughout the day to provide you with unique perspectives and helpful analysis that can help improve your Forex trading.

Exchange-traded funds or ETFs continue to gain popularity with investors and displace mutual funds from many portfolios.
The size of the global ETF market exceeded $10 trillion in 2021, up from $3.4 trillion in 2016, and expectations call for it to exceed $18 trillion by 2026. Why are ETFs booming, and how did they become one of the fastest growing asset classes? We have reviewed the ETF sector to identify the most competitive ETF brokers, explain what an ETF is, cover the various ETF types, analyze the ETF costs and how to buy ETFs. We also examine the pros and cons of ETF trading and investing. Make sure you read our ETF brokers guide before you add ETFs to your portfolio.

1
4.9/5
The ratings shown on DailyForex.com are determined by hours of research from our editorial team into over 10 factors, including account fees, deposit/withdrawal options, regulatory status, tradable assets, and more.
ECN-style trading
Daily market research and Autochartist access
2
4.8/5
The ratings shown on DailyForex.com are determined by hours of research from our editorial team into over 10 factors, including account fees, deposit/withdrawal options, regulatory status, tradable assets, and more.
A well-balanced asset selection, including options, ETFs, and crypto.
Reasonable commission-free Forex costs from 0.9 pips or $9.00 per lot.
75-95% of traders on margin lose
3
4.7/5
The ratings shown on DailyForex.com are determined by hours of research from our editorial team into over 10 factors, including account fees, deposit/withdrawal options, regulatory status, tradable assets, and more.
100+ liquid ETFs covering 10+ sectors & ETF trading introduction.
Quality education and webinars for beginners & 24/7 customer support.
4
4.6/5
The ratings shown on DailyForex.com are determined by hours of research from our editorial team into over 10 factors, including account fees, deposit/withdrawal options, regulatory status, tradable assets, and more.
Seven ETFs with maximum leverage of 1:5 and negative balance protection.
Cryptocurrency deposits from $1 and withdrawals from $10.
5
4.5/5
The ratings shown on DailyForex.com are determined by hours of research from our editorial team into over 10 factors, including account fees, deposit/withdrawal options, regulatory status, tradable assets, and more.
16 payment processors in 16+ currencies, including several cryptocurrencies
High-quality research and educational content for beginners & 24/5 customer support.

  • FP Markets, ECN trading with leverage up to 1:500.
  • AvaTrade, Highly regulated, choice of fixed or floating spreads.
  • Pepperstone, Great ECN execution on MT4/5, cTader, TradingView and Pepperstone proprietary platform.
  • Eightcap, Competitive pricing + excellent daily videos.
  • ACY Securities, Swap-free trading with the MT5 trading platform.

FP Markets

In Summary ECN trading with leverage up to 1:500

FP Markets ranks amongst the best ETF brokers with the most advanced MT4/MT5 trading environments due to twelve useful plugins, Autochartist, and Trading Central services. It offers 46 of the most liquid ETFs and supports leveraged ETF trading of 1:5, ensuring traders have wide access to these products. Quality research, which includes actionable trading signals, and market reports via a frequent newsletter, is available. Beginners also get a comprehensive introduction to ETF trading.

Traders benefit from a competitive commission-based pricing environment showing raw spreads from 0.0 pips for a separate commission ticket fee of $6.00 per round lot, NDD (no dealing desk) straight through order processing, lack of requotes, and deep liquidity.. MAM/PAMM accounts cater to traditional managed account setups, which remain popular among ETF investors.

Read more on FP Markets »
4.9/5 in this category

Pros & Cons

  • Choice of trading platforms and auxiliary trading tools
  • Very competitive cost structure and excellent asset selection
  • Low minimum deposit requirement and leverage of up to 1:500
  • Well-regulated and trustworthy
  • Availability of Iress geographically restricted

AvaTrade

In Summary Highly regulated, choice of fixed or floating spreads

AvaTrade offers 60 highly liquid ETFs, but they are only available on the MT5 trading platform, which AvaTrade further upgrades with the Trading Central plugin. Beginners should start their ETF journey by taking advantage of the excellent educational content available at the spun-out SharpTrader Academy, which is considered one of the leading educational platforms industry wide. The reasonably priced commission-free cost structure features minimum spreads of 0.0013 pips for the most liquid ETFs. AvaTrade supports ETF trading with a maximum leverage of 1:5, this justifies its inclusion within my competitive ETF brokers list.

Copy traders get AvaSocial, DupliTrade, and the embedded MT5 service, offering a passive approach to ETF trading. AvaTrade also maintains a high-quality partnership program featuring 70,000+ partners from 150+ counties and 250M+ commission payouts.

Read more on AvaTrade »
4.8/5 in this category

Pros & Cons

  • High quality educational offering via AvaAcademy
  • Excellent choice of trading platforms catering to various trading needs
  • Broad asset selection and cross-asset diversification opportunities
  • Well-regulated and trusted broker with oversight from a central bank
  • Trading costs competitive but nothing special

Pepperstone

In Summary Great ECN execution on MT4/5, cTader, TradingView and Pepperstone proprietary platform

Pepperstone ranks among my best CFD ETF brokers. It lowers the bar for traders to engage in algorithmic ETF trading. Pepperstone also upgrades MT4/MT5 with the 28-plugin Smart Trader Tools package and Autochartist. The ETF selection allows traders to gain exposure to equity markets in 35 countries across six continents.

ETF traders pay a $0.02 commission per ETF per side for raw spreads without internal markups. ETF copy trading is available via embedded MT4/MT5/cTrader copy trading, Signal Start, Copy Trading by Pepperstone, and DupliTrade depending on jurisdiction.

Read more on Pepperstone »
4.7/5 in this category
Get Started
75-95% of traders on margin lose

Pros & Cons

  • Excellent choice of trading platforms consisting of MT4/MT5, cTrader, TreadingView and Pepperstone Platform
  • Market-leading MT4/MT5 upgrade package, Autochartist, and API trading
  • Social trading support via Signal Start, MetaTrader Signals, Copy Trading by Pepperstone, DupliTrade
  • Leverage of up to 1:400 depends on jurisdiction and superb trade execution
  • Demo accounts have 60-day time limits

Eightcap

In Summary Competitive pricing + excellent daily videos

Eightcap established itself among the best Forex brokers due to its superb trading infrastructure, excellent order execution amid deep liquidity, competitive fees, and cutting-edge trading tools. Manual traders get a well-designed AI-powered economic calendar, and Eightcap upgrades MT4 via Capitalise AI, which enables algorithmic trading in a code-free environment. MT5 traders benefit from Flash Trader, while the dedicated cryptocurrency solution Crypto Crusher caters to cryptocurrency traders.

Copy traders get the embedded MT4/MT5 services, and Eightcap connects social traders to the active TradingView community. Beginner traders get an outstanding educational and research offering via Eightcap Labs and Eightcap Trade Zone.

Read more on Eightcap »
4.6/5 in this category

Pros & Cons

  • Low minimum deposit and high leverage of up to 1:500
  • Competitive cost structure
  • Excellent technology infrastructure and seasoned management team
  • Daily research and quality educational content
  • Limited leverage in some areas

ACY Securities

In Summary Swap-free trading with the MT5 trading platform

ACY Securities upgrades MT4/MT5 with Capitalise AI and 15 quality plugins. Capitalise AI supports algorithmic trading in a code-free environment and is the most advanced trading tool available, making ACY Securities one of the best Forex brokers. Low-latency 24/5 market access exists via VPS hosting. Copy traders may use the embedded MT4/MT5 services or diversify via Signal Start and SoFinX.

The commission-based trading accounts offer competitive trading fees with raw spreads from 0.0 pips for a commission of $6.00 for ProZero and $5.00 for Bespoke. Traders also benefit from fast order execution under 30ms via 46 liquidity providers.

Read more on ACY Securities »
4.5/5 in this category

Pros & Cons

  • Large repository of daily analysis and educational content
  • Low spreads starting at 0 pips in the Spread Zero account
  • 16 payment processors, including cryptocurrencies
  • Competitive trading fees in its commission-based accounts
  • Only 1 regulator


Best ETF Brokers Comparison

Regulators
ASIC, CMA, CySEC, FSCAASIC, BVI, Central Bank of Ireland, FFAJ, FSCA, KNF, MiFIDASIC, BaFin, CMA, CySEC, DFSA, FCA, SCBASIC, CySEC, FCA, SCBASIC
Year Established
20052006201020092011
Execution Type(s)
ECN/STPMarket MakerNo Dealing Desk, NDDECN/STP, Market MakerECN/STP, Market Maker
Minimum Deposit
$100
$100
$0
$100
$50
Average Trading Cost EUR/USD
1.2 pips0.9 pips1.1 pips1.0 pips1.1 pips ($11.00)
Average Trading Cost GBP/USD
1.4 pips1.5 pips1.4 pips1.2 pips1.1 pips ($11.00)
Average Trading Cost Gold
$0.16$0.29 $0.15$0.12 $0.15
Trading Platform(s)
MetaTrader 4, MetaTrader 5, cTrader, Proprietary platform, Web-basedOther, MetaTrader 4, MetaTrader 5, Proprietary platform, Web-based+Other, MetaTrader 4, MetaTrader 5, cTrader, Proprietary platform, Trading View+MetaTrader 4, MetaTrader 5, Trading ViewMetaTrader 4, MetaTrader 5
Islamic Account
Negative Balance Protection
N/A

What is an ETF?

An ETF trades on a stock exchange, but unlike individual stocks, it is an investment fund consisting of various assets, generally around a specific theme or industry. Investors and traders can buy and sell ETFs the same way they do individual stocks, directly from owners, in anonymous transactions facilitated by ETF brokers. Initially ETFs were index funds, and the first one launched in 1990 in Canada, but the sector evolved and matured and with 8,000+ ETFs globally and growing, they now cover a wide range of global assets. Index ETFs remain some of the most liquid and most professional portfolios include them, including a growing number of pension funds and retirement accounts due to the comparatively low management fees these instruments levy.

Exchange-traded funds offer investors a well-diversified and liquid product with lower costs than most mutual funds, allowing smaller investors to manage efficient, diversified and increasingly sophisticated portfolios.

For example, an investor analyzes that semiconductors will enter a growth phase. They can buy semiconductor ETFs rather than pick individual semiconductor names. It allows them to diversify across the sector, reduce risk by holding individual firms, and still receive dividends. The costs are also lower, creating more efficient portfolios.

Investors can deploy long and short strategies, and leverage on ETF’s is available to investors trading short term moves.


What Is the Difference Between a Leveraged ETF and Leveraged ETF Trading?


A leveraged ETF uses financial derivatives and debt to increase its potential returns, but it also applies to downside risk. Leveraged ETF trading is available at most competitive ETF brokers, meaning that investors must pay a fraction of the total transaction size but may incur financing costs on overnight positions.

A leveraged ETF is ideal for active investors as it can increase their returns in a shorter timeframe, However ETF trading is best suited for short-term traders due to the holding costs with each day the ETF is in the portfolio.


What Is the Difference Between ETFs, Stocks, and Mutual Funds?

  • A stock is a certificate of legal ownership of a share of an individual company. Mutual funds and ETFs are vehicles which in turn usually own underlying assets, so they represent a form of indirect investment, although the investment is usually very transparent.
  • Mutual funds are bought and sold directly from the company owning the funds daily, but ETFs are publicly traded on stock exchanges and can be bought or sold at any time when the relevant market is open.
  • ETFs are usually cheaper than mutual funds, with lower expense ratios, but brokers typically charge commission on their purchase or sale.
  • Mutual funds tend to have minimum investment requirements, while it is possible to buy just 1 share of an ETF or an individual stock for a few dollars.
  • ETFs and stocks are usually more tax-efficient than mutual funds, at least for US taxpayers.


Types of ETFs

The first ETFs focused on tracking indices like the S&P 500. Whilst index ETFs remain amongst the most traded instruments, ETF brokers with broad sector coverage offer traders a diversified choice of ETFs catering to various industries and trading strategies.

The most common types of ETF’s are:

  • Index ETFs - Index ETFs attempt to track an index 1:1. They offer traders a low-cost and highly liquid trading instrument, included in many modern ETF portfolios. Factor ETFs use enhanced indexing and apply active management oversight trying to beat the underlying index. The two strategies of index ETFs consist of replication, which refers to an ETF investing 100% of capital in the underlying index with appropriate allocation, and representative sampling, where the ETF invests between 80% to 95% in the underlying index and the remainder in other assets.
  • Sector ETFs - Sector ETFs focus on specific sectors, like technology, industrial goods, finance etc. Some are more specific. For example, instead of technology as a general common area, they might only invest in semiconductor companies, and instead of finance, they narrow their objective to banks only. They are ideal for active investors looking to build portfolios with a view about the growth potential within certain global industries and sub sectors. Conversely it also increases the risk profile as the investor may become more concentrated in their holdings via ‘overweight’ exposure to a sector.
  • Bond ETFs - Bond ETFs relate to bond ‘baskets’ and can include sovereign and corporate debt, paying interest to bond holders, many ETF portfolios add them to diversify their holdings by asset class type. For most investors, bond ETFs offer more effective exposure to the bond market and rise in popularity amid economic uncertainty.
  • Commodity ETFs - Commodity ETFs invest in commodities and trade similarly to index ETFs, they are not regulated as investment companies but remain structured as exchange-traded grantor trusts. Each commodity ETF usually represents ownership of the underlying asset. For example, one SPDR Gold Shares ETF share grants ownership of one-tenth of an ounce of gold. Most commodity ETFs invest in the physical assets, but some invest in futures contracts, rolling the delivery date forward indefinitely. It can create more volatility in price action along the term structure while incurring high rollover costs.
  • Currency ETFs - Currency ETFs go long and short and are ideal for equity investors who want to diversify but do not have the expertise to trade Forex. Currency ETFs expose investors to Forex fluctuations, interest rates, and margin risk. They are highly liquid, and investors with international portfolios can hedge currency risk with currency ETFs.
  • Actively Managed ETFs - Unlike traditional ETFs with passive management, actively managed ETFs compete with active investment funds and employ portfolio managers to pick assets. They are usually the most expensive ETFs but notably cheaper versus non-ETF actively managed funds. They also trade on an equity exchange, and traders can short sell them or buy them on margin, which is not possible with other actively managed funds.
  • Inverse ETFs - Inverse ETFs are the equivalent of short-selling in the ETF space and rely primarily on futures contracts. They move opposite of the underlying securities. They are ideal for short selling an entire sector and carry less risk than picking individual assets.
  • Leveraged ETFs - Leveraged ETFs attempt to deliver leveraged returns, with 2x and 3x ETFs, referring to two- and three-times leverage, the most common factor used in Leveraged ETFs. They face more volatility and suffer from the arithmetic effect of the volatility of the underlying index. For example, an index rising from 100 to 110 and dropping back down to 100 results in no loss to the investor. A 2x Leveraged ETF following the percentage gains and losses would end at 98.18, and the investor would lose 1.82%.
  • Thematic ETFs - Thematic ETFs focus on a theme, for example, social media companies and buy stocks active in that industry. They gained popularity among ESG investors, and a recent survey showed that 45% of ETF companies believe 50% of their ETF launches will consist of Thematic ETFs.


Bitcoin ETFs

After a long wait, in early 2024 the US Securities and Exchange Commission approved the sale of retail spot Bitcoin ETFs, which had previously not been marketed anywhere in the world. This development was widely hailed as opening retail investment in Bitcoin. Previously, anyone wanting to invest in Bitcoin effectively had to buy it directly on a crypto exchange, or buy Bitcoin futures, with the smallest Bitcoin future valued at one tenth of the price of a Bitcoin. Now it is possible for smaller investments to be made, and at close to the spot price rather than a month or quarter end implied value which is inherent to futures pricing.

Several investment houses launched their own Bitcoin ETF’s following the SEC’s regulatory approval. The ETFs by BlackRock and Fidelity accrued most subscriptions in the days following the regulator’s OK, with each receiving more than $400 million in investor subscriptions in only the first two days of sales.

At the time of writing, 11 Bitcoin ETFs were on the market in the USA.

As well as being an exciting opportunity for investors, some Bitcoin CFD brokers may soon begin offering trading in CFDs based on the value of at least one of the major Bitcoin ETFs on the market.


Who Should Invest in ETFs?

There are several different types of ETFs, so there can be many valid reasons why investing in an ETF could be a good idea.

Basically, ETFs are usually seen as a good vehicle for retail investors with portfolios worth less than $100,000.

Reasons for this include:

  1. Many ETFs own baskets of stocks or other investments, diversifying risk.
  2. Position sizes can be small and very flexible, with many ETFs retailing at under $50 per share. Compare this to futures for example, where the smallest possible position size is typically higher than $20,000.
  3. ETFs can be found which own almost any investment you can think of. Today, there are ETFs offered for different types of stocks, commodities, and currencies. It is likely that there will soon be Bitcoin ETFs.
  4. Increased competition in the ETF market has brought down fees, and it is much more cost effective for most retail investors to buy shares in an ETF holding a basket of investment than to try to replicate the basket by buying the individual stocks or other investments themselves.


How to Choose a Good ETF Brokerage?

Trading with competitive ETF brokers ensures that investors and traders get the necessary access to markets and the trading tools to manage efficiently a portfolio. Our 12-point checklist below covers everything ETF investors and traders should evaluate before funding an account with their preferred ETF brokers.

ETF investors and traders should ensure their ETF brokers offer the following:

  • Regulation - Trading with a regulated broker with a clean operational history, ideally exceeding ten years, helps significantly reduce the risk of scams and fraud. Regulated entities also segregate client deposits from corporate funds and offer ‘negative balance protection’, which is essential for leveraged trading.
  • Local-currency accounts - The US Dollar is the quote currency for ETFs at most retail brokers. ETF traders can eliminate currency conversion costs if they manage ETF portfolios in US Dollar accounts, irrelevant to their local currency.
  • Local payment methods - Bank wires, credit/debit card deposits, and e-wallets are available at ETF brokers from our review. Localized bank-related payment options may exist, and cryptocurrencies are also available with some providers.
  • Spread sizes - Most ETF brokers offer commission-free spreads, which can drop below 0.0010 pips during the most liquid trading periods, but 0.0020 remains competitive.
  • Fees - ETF brokers who levy commissions on ETFs should offer lower spreads, but traders must calculate the final costs per their trading strategy to compare fees.
  • Products - With 8,000+ ETFs available, ETF brokers covering the most liquid 25% of ETFs rank as highly competitive, some ETFs are either obscure in nature or have limited liquidity. For retail traders and beginners, 45+ ETFs should suffice as they likely cover a broad range of strategies and sectors.
  • Asset diversity - Pure ETF traders achieve asset diversification via ETFs covering various sectors, including currency and bond ETFs.
  • Customer service in native language - 24/5 customer service, a live chat function for non-urgent matters, and phone support for emergencies exist at high-quality ETF brokers.
  • Account type diversity - Since most ETF brokers opt for a commission-free pricing environment, it is the only one ETF traders require. Sub-account options exist at some ETF brokers, where high-volume clients receive added benefits.
  • Demo account - Unlimited demo accounts allow ETF traders to test their portfolio-building approach, and beginners may evaluate trading conditions. It also lets algorithmic ETF traders’ bug-fix trading solutions and test EAs, seasoned traders can tweak strategies and copy traders can evaluate potential signal providers. Demo accounts are necessary, but traders must understand their limitations and know how to use them.
  • Mobile trading - Mobile trading is available at all ETF brokers, which is only suitable for copy trading and social trading that requires portfolio management rather than trade analysis and placement. The most competitive ETF brokers have developed high-quality proprietary mobile apps to satisfy demand from the younger generation of ETF traders.
  • Deposits/Withdrawals - Usually deposits are free, but traders may face withdrawal fees, including third-party payment processing. Currency conversion fees apply each time the deposit or withdrawal currency differs from the account ‘base’ currency.


How Much Do ETFs Cost?

ETF costs consist of the spread, which is the difference between the bid and the ask prices of the asset. It represents the primary source of income for ETF brokers. Some brokers charge commissions for ETF trading, where spreads are lower, and investors must compute the final trading costs on a case-by-case basis.

Since an ETF is a fund, an expense ratio covers the costs of administering/managing the ETF. The expense ratio applies annually and can be less than 0.05% or more than 1.00%, dependent on the ETF, where actively managed ETFs usually rank among the most expensive ones. Therefore, an investor committing $5,000 to an ETF with an expense ratio of 0.10% would pay $50 annually. Despite having an expense ratio, ETFs are overall cheaper than mutual funds and other actively managed assets.


How to Buy & Sell ETFs?

Buying and selling ETFs functions identically to stocks since ETFs can be traded on an exchange during regular operating hours of their respective equity exchanges, for example 8.30am-4.30pm UK time for the FTSE. Most ETF brokers offer commission-free ETF trading, but investors and traders will pay annual expense ratios, while leveraged ETF traders face swap rates on overnight positions.

ETFs list their holdings transparently on their websites, and ETF traders who want a specific asset in their portfolio should check the constituents of the ETF before buying it.

While ETFs are passive investments, they require extensive analysis and carry a degree of risk. Therefore, education and in-depth analysis must precede the buying and selling of ETFs, as the same fundamental approach to financial markets applies here as with all investment decisions, do your research.


What are Leveraged ETFs?

Leveraged ETFs magnify the potential gains and losses of ETFs. For example, a 2x leveraged ETF will rise 4% if the underlying index increases 2%, but the same applies to losses. Among leveraged ETFs, 2x and 3x are the most common ones. They are more volatile, can carry higher fees and more risk, and suffer from the arithmetic effect of the volatility of the underlying index. ETF brokers with a balanced ETF selection will offer leveraged ETFs.

Here is a simplified example of the ‘arithmetic effect’ of leveraged moves on the underlying asset:

  • Assume an asset rises from 100 to 100 for a 10% gain
  • A 3x leveraged ETF will increase from 100 to 130, or 3x 10%
  • Assume the asset drops from 110 to 100 for a loss of 9.09%
  • A 3x leveraged ETF will drop from 130 to 94.55, or 3x 9.09%


The Pros & Cons of Investing in ETFs

Before investors and traders open accounts with leading ETF brokers, they should understand and consider the pros and cons of ETF trading. It will allow them to gauge if and why ETF trading suits them and make an informed decision about how best to use the instruments.

The pros of ETF trading:

  • ETFs combine the flexibility of stock trading and the diversification of mutual funds
  • Management fees for ETFs are, on average, 33% cheaper than mutual funds
  • ETFs are liquid financial assets that are bought and sold like stocks throughout the trading session
  • Complete transparency with each ETF detailing its holdings and their values daily
  • Excellent market exposure and diversification opportunities for seasoned professionals and beginners alike
  • Smaller retail portfolios can operate efficiently and effectively via ETFs
  • The most competitive ETF brokers offer fractional ETF investing, lowering capital requirements, and ensuring everyone interested can start building well-balanced, diversified portfolios
  • ETFs are notably more tax-efficient than mutual funds, primarily due to lower capital gains taxes
  • Leverage is available for ETFs, and traders can short-sell ETFs
  • Algorithmic trading for ETFs is possible if ETF brokers support it
  • Retail account management via MAM/PAMM accounts is possible
  • Copy and social trading exists, supported by user-friendly mobile apps, which represents a significant growth opportunity
  • Robo-Advisory firms increase their market share in the ETF sector, offering an in-demand investing tool
  • ETFs belong to the fastest-growing asset classes, both in number and assets under management, and more ETFs, including thematic ones and ESG-oriented strategies, become available frequently

The cons of ETF trading:

  • A widespread misunderstanding of ETF trading due to the lack of in-depth education before buying and selling ETFs, despite its widespread availability
  • Despite lower trading costs versus mutual funds, expense ratios apply, and many investors fail to factor in their impact on returns
  • Liquidity risk among less liquid ETFs can cause price gaps and erratic price action
  • Confusion between leveraged ETFs and leveraged ETF trading
  • Ignoring the arithmetic effect of the volatility of the underlying asset on leveraged ETFs
  • Risks stemming from synthetic ETFs, including counterparty risks
  • Failure by investors and traders to conduct thorough due diligence on ETFs
  • Avoidable leveraged trading losses amid the absence of adequate risk management
  • Insufficient trading capital and unrealistic trading expectations can result in overtrading, frustration, and inefficient trading
  • A false sense of accomplishment among beginners who rely on demo trading as an educational tool, which lacks exposure to trading psychology
  • Negative impact of ETFs on price stability, especially commodity ETFs


Do ETFs Pay Dividends?

Not all ETFs pay dividends, but many do. Whether an ETF will pay a dividend usually depends on the type of underlying asset held by the ETF. If the asset or asset owned by the ETF produces income, then the ETF will receive that income, and will usually pass it on to its shareholders as a dividend. For example, if an ETF owns a basket of stocks designed to replicate the performance of the S&P 500 Index, it will probably pay a dividend as many of the shares it owns will also pay dividends.


Are ETFs Safe?

Usually, ETFs are relatively safe, because they are subject to regulation, but there are several factors that will determine how risky a particular ETF is.

  1. Where the ETF is regulated. Some regulators are stricter than others. ETFs are generally well-regulated and transparent.
  2. What underlying asset(s) is/are owned by the ETF. Some assets are riskier than others. For example, stocks and commodities can be very volatile, but if an ETF’s holdings are very diversified, such volatility could be dampened.
  3. Whether the ETF uses leverage and/or holds short positions, both of which can magnify risk.
  4. If an ETF is highly focused on a single sector or type of technology, it will probably be riskier.
  5. If an ETF is managed by a professional, regulated financial institution, it will probably be safer.


Should You Buy Commission-Free ETFs?

There are several reasons whether buying commission-free ETFs is a good idea for you.

  1. If you trade or rebalance your investment portfolio frequently, commission-free ETFs could be a worthwhile cost saving.
  2. If you are a longer-term investor, then any savings on commissions are likely to be minimal over the long term, so may not be worth it.
  3. Some commission-free ETFs just make up the difference by charging a higher expense ratio, so this is worth keeping in mind.
  4. Some brokers impose restrictions on commission-free ETFs, for example demanding they are owned for a minimum period. If you don’t want to be tied down for a while, watch out.
  5. Remember that the most important thing in investing is buying or selling the right thing at the right time. If you get that right, a few commissions here and there are going to seem very unimportant.


Bottom Line

ETFs offer an excellent combination with the flexibility of share trading and the diversification of mutual funds, which explains their rapid growth rate. Assets under management in ETFs ballooned from $3.4 trillion in 2016 to $10+ trillion in 2021, and expectations see a rise above $18 trillion by 2026. ETFs offer smaller portfolios the ability to achieve diversification and operate efficiently, while sophisticated managers use them to achieve their annual performance targets. They are significantly cheaper than mutual funds, highly liquid trading instruments, and for that reason pension funds and retirement accounts invest heavily in ETFs.

Traders can benefit from leveraged ETF trading and the ability to short-sell ETFs. The most competitive ETF brokers support algorithmic trading, and with 8,000+ ETFs, including thematic and ESG-focused ETFs, market participants are granted broad-based exposure to assets and strategies. Beginners should begin with in-depth education to understand ETFs, the differences between various ETFs, the costs of ETF trading, and the risks involved. ETFs will continue to displace mutual funds and have emerged as the most disruptive and sought-after asset in the financial sector.


You might also be interested in reviewing the below top brokers:

FAQs

Are ETFs a good investment?

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It depends on the investment strategy and preferences of the investor, but overall, ETFs remain an attractive asset. Most portfolio managers can use it to improve the returns of a well-diversified portfolio, hedge risk, and reduce cash drag.

Are ETFs good for beginner traders?

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Most beginner traders will benefit from ETFs amid their low-cost structure and low volatility. ETFs also allow less capitalized portfolios to achieve cross-asset and cross-sector diversification while lowering the risk profile, shielding new retail traders from the volatile price action of equities.

Can you make money trading ETFs?

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ETFs, like all other assets, require a well-structured trading strategy, capital, and patience. The profit potential ranks well above mutual funds but below equity trading. Skilled portfolio managers can achieve above-average returns with ETF trading.

How do ETFs work?

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ETFs trade exactly like equities. Traders can buy and sell them throughout the trading session from a brokerage account. ETFs are also available in margin accounts.

Are ETFs a safe investment?

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ETFs remain as safe an investment as equities, especially those provided by a reputable provider. Traders must apply the same due diligence and risk assessment as with other assets.

How much do ETFs cost?

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The fee structure depends on the ETF, but the average is close to 0.50% of AUM. Therefore, they are notably less expensive compared to almost 1.50% charged by mutual funds. Brokers may also charge a commission per transaction, similar to equity trading. Leveraged overnight ETF positions face swap rates.

Do ETFs have minimum investments?

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Unlike mutual funds, in which investors face a minimum investment, ETFs do not require one. The minimum transaction size is generally one share of the ETF, but some brokers may increase it internally.

Can you buy ETFs from any brokerage?

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ETFs are available at any broker that chooses to offer them. Given their popularity, many online brokers include ETFs in their offerings.

How much should a beginner invest in ETFs?

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It depends on the individual and their goals. The most competitive ETF brokers offer fractional ETF investment, meaning capital deployed from $100 or more could build diversified ETF portfolios – to an extent. There are many strategies, and investors and traders must select the one that suits their market outlook, ethical considerations, and goals.

Which platform is best for ETFs?

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The best choice of ETF platform boils down to individual preferences and requirements. Those seeking account management services must ensure their ETF brokers offer them. Algorithmic ETF traders require a platform like MT4/MT5 that supports it, copy traders must have access to active trading communities, and manual traders must have an in-depth analytics suite.

Is it better to invest in ETFs or stocks?

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ETFs decrease the risk profile and offer excellent diversification at a lower cost and more tax-efficient structure. They also require less capital, but the return potential is smaller than stocks. While it depends on the individual’s capabilities in financial markets, ETFs are a better option for traders and investors with smaller capitalizations.

What is the difference between an ETF and a mutual fund?

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An ETF trades like a stock, is highly liquid, experiences volatility, and is cheaper than mutual funds. ETF transactions occur between buyers and sellers in anonymous transactions handled by ETF brokers. They are available on leverage, and traders can short them. Investors must purchase mutual funds from fund companies, and they are revalued once per day at the end of the official trading session. Most ETFs are passive funds, while mutual funds are under active management.

Do you need a broker to buy ETFs?

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Yes, you will need a broker to buy ETFs, although some banks will also act as brokers.

What are the top 5 ETFs to buy?

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The best ETFs for you will depend upon your needs, but the most popular ETFs in Q2 2023 were: ProShares UltraPro Short QQQ ProShares UltraPro QQQ SPDR S&P 500 ETF Trust Direxion Daily Semiconductor Bull 3x Shares Invesco QQQ Trust Series I

What is the most successful ETF?

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The best-performing ETF in 2022 was the iShares MSCI Turkey ETF, which ended the year up by 106%.

Christopher Lewis
About Christopher Lewis
Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.