10 Best ETF Brokers and Platforms for 2023

“ETF brokers” refer to brokerage firms (a company or financial institution) that allows investors and traders to buy and sell ETFs (Exchange-Traded Funds).

An ETF is a type of investment fund and exchange-traded product that holds a collection of assets like stocks, bonds, or commodities, and it trades on stock exchanges similarly to individual stocks. ETFs offer investors a way to pool their money in a fund that makes investments in stocks, bonds, or other assets and, in return, to get a share in that investment pool.

Exchange Traded Funds are called so because they are funds that hold a collection of assets, like stocks or bonds, and they are traded on stock exchanges, similar to individual stocks. Their name captures their nature of being both “exchange-traded” and a diversified “fund.”

ETFs offer a convenient way for investors to achieve a diversified portfolio. Whether someone wants broad market exposure or wants to target specific sectors, there’s likely an ETF that fits their needs. Moreover, ETFs are popular for another reason: ETFs pay dividends. When an ETF holds income-producing assets, such as dividend-paying stocks or interest-bearing bonds, the income generated from those assets is collected by the ETF and distributed to the shareholders.

ETF brokerages often offer real-time trading, detailed ETF research and analytics, and potentially lower transaction costs. They might also provide features such as dividend reinvestment, tax optimization strategies, and access to international ETFs. The level of customer service, user interface, and associated trading fees can vary across different brokerages.

In this article, we have grouped the best brokers for investing in ETFs.

To compile this ranking, we took into consideration the following factors:

• Total number of ETFs to invest in
• Presence of fractional ETFs
• Low commissions on ETFs
• Ability to invest in leverage
• Additional tools for managing ETFs

Round-up

What are the best ETF brokers?

Below our curated list of the best ETF brokers and ETF trading platforms, showcasing their advanced features and characteristics.

How to choose an ETF broker

When choosing a broker for ETF investing, the main concern should be about fees and long term costs.

In fact ETFs are an asset type that should be held long term to potentially be profitable, and keeping costs low is extremely important.

Other than the buy-sell costs, which some brokers do not charge under certain conditions (like DEGIRO), you should make sure the ETF broker of your choice do not charges administration costs or performance fees.

These commissions are usually charged when using Robo-Advisors to buy ETFs, and can become quite high overtime as they are usually paid on percentage based on the total amount of money invested into the service.

For instance, if a trader invests 1000 USD on an ETF, and the administration costs are set at 1%, it means that the trader will have to pay 10 USD per year to the broker.

Characteristics of ETFs: how to choose one

There are several companies in the world that create ETFs, and it is common to find ETFs that replicate the same markets, but in a slightly different way.

The factors governing the choice of an ETF are varied, but among the main ones are:

• The price
• The size of the fund
• The annual costs
• The type of replication
• The strategy used
• The currency of the fund
• The mode of dividend distribution
• The exchange at which the ETF is listed

ETFs are listed on an exchange, and just like stocks they have a market value. Their value is derived primarily from the performance of the market that the ETF is replicating. Typically, the cost of an ETF ranges from $5 to $200. In addition, you have to consider the commissions of the broker on which you buy the ETF.

In addition to the initial cost to invest in it, each ETF has:

• an annual cost (the TER, or Total Expense Ratio), which is generally less than 1% per year and is used to cover the costs of managing the fund
• commissions that the distributing entity must pay to brokers each time it recalibrates the basket of assets within the ETF
• swap fees if the type of ETF replication is synthetic.

ETF replication can be physical or synthetic. Typically, larger mutual funds have the economics to actually buy the assets within the ETF, while smaller funds may not, and consequently invest in derivatives.

Another case where an ETF might offer synthetic replications is when it seeks to replicate markets where it is complex or inexpensive to source physical assets (e.g., stocks listed on exchanges in poor and/or emerging markets).

Depending on the size of the fund, is important not only to have a physical replication, but also to have a more faithful sampling of the market you want to track. In fact, a large ETF will be able to source a large number of assets that will allow it to more accurately manage allocation percentages, and thus, better replicate the market.

Each ETF has its own investment strategy. Typically ETFs use long-only strategies (i.e., they buy assets with the expectation that they will increase in value), however, there are ETFs that use short-only strategies (which increase in value if the market loses it), ETFs that use leverage, or ETFs that use all three strategies.

Another important point is the currency of the fund. Investing in euros in a fund that uses the U.S. dollar exposes the investor to foreign exchange risk.

Finally, it is also important to know the dividend management of ETFs. Distributing ETFs “distribute” dividends directly to the investor’s account. In contrast, accumulation ETFs reinvest dividends within the fund.

How much money can you earn with ETFs?

Taking a look at the top 20 ETFs by market capitalization in 2022, to date 10-year average returns come in at 15.6%, while one-year returns are generally negative with an average of -14.68%.

Why invest in ETFs: Risks and benefits

Pro

Investing in ETFs has many benefits on a practical level. In fact, they are professionally managed investment funds, and the trader’s only responsibility is to choose the correct ETF to invest in without worrying about rebalancing to achieve a perfect replication.

ETFs are also a much cheaper method of investing in stock indexes, which often require large sums (even exceeding $1,000 per single share).

Brokers who offer ETFs typically charge very low commissions (and even zero in some cases).

Cons

However, although ETFs have many benefits, there are also two risks namely. These are, foreign exchange risk and market fluctuations.

When you invest in EUR in a USD-listed ETF, in addition to the ETF you are also indirectly investing in the U.S. dollar. Assuming that the Euro becomes stronger than the U.S. Dollar, the ETF will lose value relative to the initial investment.

Finally, another problem with ETFs is the risk from market fluctuations. Although it is often considered a less risky asset than others, there is always the risk that it will lose value and thus cause the investor to lose money.

How long can an ETF be held?

An analysis of the returns of the world’s leading ETFs shows that on average it takes at least 3 years to make a profit from the investment. However, the longer an ETF is held, the more its average returns increase.

That is why when investing in an ETF there is no maximum time limit, but it always depends on the investor’s plans and the average returns of the ETF they are investing in.

You also have to take into account the type of ETF you are investing in.

Investing in synthetic ETFs, that is, ETFs that have derivatives as their underlying assets could be counterproductive in the long run because the swap fees would add up day after day, thus reducing some of the ETF’s growth.

If you are looking for an ETF to hold for the long term you should consider physically replicating ETFs.

How much money does it take to invest in ETFs?

It takes an average of $175 to invest in an ETF, taking into consideration the top 20 ETFs by market capitalization.

However, each ETF has its own cost, which means that ETFs of all values can be found.

Their market valuation also depends on the exchange on which they are listed. The same ETF listed on two different exchanges may have two slightly different valuations.

To invest in the most expensive ETFs, it is good to know that there are brokers such as Trading212 that allow ETFs to be fractionated as low as $1.