Commission Free ETF Trading, Fact Or Reality?

By: Pete
Date posted: 10.05.2012 (12:37 am) | Write a Comment  (0 Comments)

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Both in Canada and the US, several brokers are able to offer commission free ETF trading. Several brokers such as Firstrade, TD Ameritrade and Fidelity offer this in the US. Basically, such brokers offer the ability to buy and sell a select group of ETF’s, free of charge. If you are considering building a long term ETF portfolio, it is very possible that this is something worth looking for. The main things I’d look for are:

-the list of the ETF’s that can be traded free of commission
-how those ETF’s compare to competing products

For example, Fidelity offers commission free trading on EEM which is good but has been an inferior offering compared to VWO for example which is offered commission free on TD Ameritrade. I don’t think you need to always have the best ETF but it’s worth trying to look for the best fit depending on how active you’ll end up being as well. Just as an example, here are the ones offered by Fidelity:

You can also see the even better list offered by TD Ameritrade:

As you can see, you are able to access ETF’s from virtually every asset class, free of charge, which can make a bug difference, especially for smaller size portfolios where the commissions can end up having an impact on returns.

How This Is Possible

If an ETF such as SPY is trading at the following market:

Bid: 145.12
Offer: 145.13

What the broker will do is offer you to buy for free at 145.13 and sell at 145.12. The goal is for the broker to make a small profit on each trade, especially when clients are trading both sides.

So yes, sometimes free really does exist


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