5 Brokerages Where You Can Trade ETFs for Free

Low expenses and fees are only two of the factors that make ETFs effective investment vehicles. You can improve your returns even further by purchasing ETFs for free — without transaction fees.

Exchange-traded funds and mutual funds are similar in some ways. Both hold a variety of securities, provide easy diversification and trade on the exchanges. However, mutual funds are bought and sold only at the end of the day. However, ETFs trade throughout the trading day just like individual stocks. Mutual funds have ongoing expenses and various additional fees. But, ETFs generally have only a small transaction fee when you buy or sell the ETF. These transaction fees are generally between $7 and $10.

Trading firms and brokerages use transaction fees to generate revenue and to offset some of the cost for operating and managing the ETF trading platforms. So, why would these companies give up a steady source of income and let investors buy and sell ETFs for free? While the transactions fees are an important stream of revenue, it is even more important that these firms get as many assets as possible under their management.

Investors have a wide selection of financial institutions to open a brokerage account. The online brokerage industry is extremely competitive. Therefore, brokerage firms look to entice investors to choose their company. Many firms — especially the larger ones — have set up some free ETF trading platforms to gain advantage and attract investors.

Here are five popular online trading firms with a cost comparison of what they offer in the world of free ETF investing.

1. E*trade

E*trade offers 117 commission-free ETFs from Global X, Wisdom Tree Investments, Inc. (NASDAQ: WETF) and Deutsche Asset Management — a division of Deutsche Bank AG (NYSE: DB). These ETFs are exempt from E*trade’s standard commission $9.99. However, you must hold the ETF for at least 30 days before selling. Otherwise, E*trade will impose a $19.99 short-term trading fee.

2. TD Ameritrade

Between ETFs and exchange-traded notes (ETNs), TD Ameritrade offers 101 commission-free investment options. TD Ameritrade offers ETFs from eight providers that include iShares, Vanguard, Pimco and PowerShares. Standard TD Ameritrade’s commission of $9.99 does not apply. However, the short-term trading fee of $19.99 applies to any ETFs that you sell less than 30 days after buying the shares.

3. Charles Schwab

Charles Schwab offers more than 200 commission-free ETFs. Investors can choose from Schwab’s own funds and additional picks from State Street Global Advisors, Guggenheim, PowerShares, and a dozen other providers. Charles Schwab is the only company in this group that does not charge any early redemption fees.

4. Fidelity

Fidelity offers almost 100 commission-free ETFs from Fidelity and iShares. The standard commission for other ETFs at Fidelity is $7.95 per trade — the lowest of the group. Fidelity does not charge the short-term trading fee for its own funds. However, there is an early redemption fee of $12.95 on any iShares funds sold less than 30 days after purchase.

5. Vanguard

Vanguard offers 55 of its own ETFs without transaction fees. Standard commission for all other funds is $7 per trade for the first 25 trades of each calendar year. All additional trades incur a $20 commission fee after the initial 25 trades. You can get reduced commissions if you open one of Vanguard’s premium accounts.

In addition to low fees or no commissions, brokerage firms offer additional benefits to attract customers. Before choosing a brokerage account based on lowest commission cost only, compare additional services that these companies provide.

Some of these firms offer tiered discounts or other services depending on the total value of your account. While one brokerage firm might have advantageous fee structure for trading ETFs, you should also compare fees that the firm charges for trading individual stocks or options. Minimum holding periods might vary before the early redemption fee applies.

In addition to brokerage services, some of these firms offer banking capabilities. Charles Schwab, Fidelity and TD Ameritrade offer bundled services that link your brokerage account with your checking account, a debit card, a retirement account, or a credit card. Another important aspect for consideration is the level of customer service and assistance. This is especially important for investors new to ETF trading that might need additional help.

As always, you must evaluate your own specific situation and decide which trading strategy will work best to reach your financial goals. It does not make a difference whether you use the information here to open a new brokerage account or to you switch your existing account to a new one.

This list of five firms that offer free trading of exchange-traded funds is a good place to start for trading ETFs. Stocks, mutual funds, bonds and other types of investments are important parts of every investor’s portfolio. However, despite of their many advantages, ETFs are overlooked frequently.

Check out additional articles and resources about ETF investing on stockinvestor.com.

Doug Fabian is the editor of three publications: Successful ETF Investing, ETF Trader’s Edge, and Fabian’s Weekly ETF Report. Doug was previously known as one of America’s top mutual fund advisors, but in recent years he has made a revolutionary 100% shift to exchange traded funds (ETFs). He regularly appears at seminars around the country.