Building Wealth

How to Trade ETFs for Free

April 17, 2018


How to Trade ETFs for Free

As The Oxford Club’s ETF Strategist, I have a challenging job.

Each day, I comb through hundreds of exchange-traded funds (ETFs) trading on U.S. stock markets by applying a dozen proprietary algorithms displayed on several trading screens.

I call this collection of screens my “ETF cockpit.”

Like a pilot tracking the ever-changing flying conditions from his cockpit, I monitor the movements of almost every asset class in the world through ETFs.

That’s how I know that both the British pound and Egyptian stocks are in a bull market…

And that coffee is in one of its biggest bear markets ever.

The task of monitoring these ETFs is complicated and ever-changing.

That’s because more than 80 ETFs – or their functional equivalents, exchange-traded notes (ETNs) – have been launched already in 2018.

That works out to one new ETF for each trading day.

Welcome to the World of Commission-Free ETF Investing

I’ve written before about how the flexibility of ETFs allows you to construct any kind of portfolio you want.

I’ve compared ETFs to Lego blocks, which allow you to build, brick by brick, a portfolio to fit your specific investment objectives.

Whatever the asset class, whatever the investment theme, whatever the current direction of the market… there’s probably an ETF you can invest in.

Early on, the knock against ETFs was that they just didn’t make financial sense if you regularly invested only a small amount of money.

Take this example…

Let’s say that at the end of every month, you had $50 to invest.

This amount was more than enough to buy a share in a well-diversified ETF.

But here was the challenge…

Even if you had paid just a $4.95 commission, almost 10% of your $50 would have gone toward commissions rather than your investment.

Investing in a no-load mutual fund with no minimum investment requirement was a much better deal.

To their credit, the major online brokerage firms soon recognized this problem.

That’s why today, most of the major ones – Charles Schwab, E-Trade, Fidelity and TD Ameritrade – offer ETFs that you can trade for free.

Schwab ETF OneSource now offers 254 commission-free ETFs from 16 providers.

E-Trade is not far behind, with 225 commission-free ETFs.

Fidelity is the laggard, with only 93 commission-free ETFs.

But the king of the ETF hill is Firstrade Securities.

This lesser-known brokerage firm recently announced that its clients can now trade more than 700 ETFs for free.

And the list includes low-expense ETFs from Vanguard, iShares, SPDR State Street and First Trust, among others.

Here’s one thing to keep in mind…

These commission-free platforms are meant to encourage regular, long-term savers.

They are not intended for speculators betting on the direction of the market today or next week.

That’s why commission-free platforms often exclude “speculative” leveraged ETFs.

It’s also why you have to hold on to each ETF for at least 30 days…

Because if you don’t follow the rules, you’ll be charged a hefty commission.

The Single Biggest Downside of ETF Investing

The advantages ETFs have over mutual funds are overwhelming.

ETFs are more liquid, cheaper to own and more flexible.

And today, you can trade many of them for free.

ETFs, however, do have one big downside…

With so many ETFs out there, how do you separate the wheat from the chaff?

As The Oxford Club’s ETF Strategist, my job is to guide you through this complicated maze.

I’ve already highlighted some of my favorite ETF investment themes in recent weeks, including robotics and artificial intelligence, timber, lithium – and even the world’s cheapest stocks.

Stay on the lookout for even more exciting opportunities in the weeks ahead…

Good investing,