ETF trading. Features that you need to know how to make money on ETF trading

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Exchange-Traded Funds

One-stop, lower-cost diversification

  • Basket of equities, fixed income, or commodities
  • Flexibility to buy and sell quickly—just like stocksВ
  • 24×5 trading on a select group of widely traded ETFs

trading on select ETFs

Why trade exchange-traded funds (ETFs)?

ETFs combine the ease of stock trading with potential diversification. They are baskets of stocks and bonds, many of which are built to track well-known market indexes like the S&P 500 В® .

Diversification

ETFs are collections of potentially dozens, hundreds, even thousands of investments 3

Flexibility

Because they’re traded on major exchanges, they’re typically as easy as stocks to buy and sell

Choice

You can buy ETFs that track specific industries or strategies

Zero commissions

At $0 per trade, 2 they’re usually less expensive than other baskets of investments such as mutual funds

Got $5,000? Get $100 (or a whole lot more—learn how). 1

Deposit or transfer just $5,000 to get $100. Or add even more for up to $3,000.

Why trade ETFs with E*TRADE?

We offer every ETF sold—along with tools and guidance that make it easy to find the right ones for your portfolio.

  • React to market news around the clock with 24×5 trading on some of today’s most active ETFs
  • Use our ETF Screener to quickly focus in on the funds you’re looking for
  • Simplify your investing with ourВ prebuilt portfoliosВ of leading ETFs

Have at it

We have everything you need to start working with ETFs right now.

  • Do your research in our Knowledge section
  • Find ETFs thatВ align with your values, reflect current trends, or invest in technologies such as clean water and artificial intelligence
  • Get professional insights: consult our analysts
  • Narrow your choices with selection tools like our All-Star 4 ETF List
  • Buy and sell with our easy-to-use trading tools

Don’t sleep on opportunity

React to after-hours market events and overnight breaking news with 24-hour trading on some of today’s most widely traded ETFs.

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  • Trade from Sunday 8 p.m. to Friday 8 p.m. ET (excluding market holidays)
  • Trade on etrade.com from 7 a.m. to 4 a.m. ET, and by phone from
    4 a.m. to 7 a.m. ET, excluding market holidays at 800-387-2331
    (broker-assist fee waived)
  • Available for SPY, QQQ, EEM, DIA, GLD, USO, FXI, TLT, SLV, UNG, IWM, SH, AGG, DOG, EFA, EWA, EWJ, IJH, PSQ, RWM, VTI, XLE, XLF, and XLK
  • View and/or cancel orders from any of our trading platforms

Important:
Trading during the Extended Hours overnight session carries unique and additional risks, such as lower liquidity, higher price volatility, and may not be appropriate for all investors. By entering an order during the overnight session you agree to the terms and conditions set forth in the Extended Hours Trading Agreement.

Top five performing ETFs

Disclaimer

Data delayed by 15 minutes.

Top five lists are not a recommendation by E*TRADE Securities or its affiliates to buy, sell, or hold any security, financial product or instrument, nor is it an endorsement of any specific security, company, fund family, product, or service.

Exchange-traded funds (ETFs) on the list were identified by the following criteria: ETFs available on the E*TRADE platform with the highest 1-year total return and overall Morningstar rating of 4 or 5 stars, excluding exchange-traded notes, sector ETFs, and leveraged ETFs.

Data quoted represents past performance. Past performance is not an indication of future results and investment returns and share prices will fluctuate on a daily basis. Your investment may be worth more or less than your original cost at redemption. Current performance may be lower or higher than the performance data quoted. Performance is based on market returns. For quarterly and current performance metrics, please click on the fund name. ETF shares cannot be redeemed directly from the ETF.

Learn more about ETFs

Our knowledge section has info to get you up to speed and keep you there.

ETFs vs. mutual funds: Understand the difference

Types of exchange-traded funds

Active vs. passive ETF investing

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Check the background of E*TRADE Securities LLC onВ FINRA’s BrokerCheck.

Investment Products: • Not FDIC Insured • No Bank Guarantee • May Lose Value

PLEASE READ THE IMPORTANT DISCLOSURES BELOW.

The All-Star List is a quarterly list of leading Mutual Funds and ETFs selected by E*TRADE Capital Management, LLC. Funds List are selected from the no load mutual funds offered through E*TRADE Securities.

All-Star Funds typically have at least a three year track record and compare favorably against their peers based on historical return, risk, expenses, manager tenure, performance and style consistency, asset size and growth and must be 1) structured through sound investment philosophy and process, 2) implemented with acceptable level of investment risk management strategy and 3 ) supported by a well- balanced investment firm. To view the fund’s Report Card with additional performance metrics, including standardized quarterly results, please click on the fund name.

Securities products and services offered by E*TRADE Securities LLC. Member FINRA/SIPC. Investment advisory services offered by E*TRADE Capital Management, LLC, a Registered Investment Adviser. Commodity futures and options on futures products and services offered by E*TRADE Futures LLC, Member NFA. Bank products and services offered by E*TRADE Bank and E*TRADE Savings Bank, both federal savings banks and Members FDIC. Stock plan administration solutions and services offered by E*TRADE Financial Corporate Services, Inc. All separate but affiliated subsidiaries of E*TRADE Financial Corporation.

Securities, investment advisory, commodity futures, options on futures and other non-deposit investment products and services are not insured by the FDIC, are not deposits or obligations of, or guaranteed by, E*TRADE Bank or E*TRADE Savings Bank, and are subject to investment risk, including possible loss of the principal amount invested.

System response and account access times may vary due to a variety of factors, including trading volumes, market conditions, system performance, and other factors.

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How does ETF trading work?

The ETF trading essentials

One of the big advantages ETFs have over traditional mutual funds is that ETFs are traded throughout the day when stock markets are open. As you’d expect, you can buy or sell at the latest price quoted on the London Stock Exchange and the price continually changes in line with the forces of supply and demand. So far, so normal.

But traditional funds don’t work that way. Strangely, you don’t know what price you’ll get when you place a fund order. That’s because you trade at the fund’s Net Asset Value (NAV) price – and that price is only calculated once a day, usually at 12 pm. The NAV is the best estimate of the underlying value of the fund’s assets but, if you place your order at 2 pm, then it will be executed at tomorrow’s 12 pm valuation price. This is known as forward-pricing.

ETFs also publish their NAV once a day but you’ll generally trade at or close to the market price quoted by your broker.

ETF prices fluctuate throughout the day

Prices are updated as buyers are matched to sellers on the London Stock Exchange via a system called SETS (Stock Exchange Electronic Trading Services).

Your broker places your order on SETS and the system hooks you up with other investors who are trading at the same time. Like a fast-moving financial Tinder, SETS is all about market efficiency. For example, a large purchase can hoover up the shares of multiple sellers, while a large sale may be split between many buyers.

Then it’s the job of market makers to step in when buyers and sellers can’t be perfectly matched. Market makers tend to be large global banks or specialised liquidity providers that facilitate trades from their own inventory of ETF shares. When sellers outnumber buyers, for instance, a market maker guarantees liquidity by purchasing the shares flooding onto the market. They perform the same role in reverse: selling ETF shares from their inventory to complete orders when demand outstrips supply.

What is the spread?

Every ETF has a buy price (bid) and a selling price (offer). The buy (or bid) price is what a buyer must pay to own an ETF share. The sell (or offer) price is what a seller is paid for an ETF share.

The bid price will always be marginally higher than the offer price and the difference between the two is called the bid-offer spread. The spread is collected by the market maker as their commission for matching the buyer with the seller.

The bid-offer spread is a dealing cost born by ETF investors every time they trade and it’s constantly changing.

You can work out the size of the spread by comparing the bid and offer prices of your ETF and applying the following formula:

The size of the spread depends on the market’s efficiency. Spreads tighten when it’s easy for market makers to connect buyers with sellers. ETFs with high daily trading volumes and liquid underlying assets usually have the narrowest spreads. For example, the spread on FTSE 100 or S&P 500 ETFs usually amounts to pennies.

Competition between multiple market makers also tightens the spreads of popular ETFs. Look at the number of market makers listed on an ETF’s product page. The more the better as they’re forced to offer keener spreads to maintain their market share of orders.

Conversely, volatile markets tend to widen spreads. Under these conditions, fast-changing prices make it hard to gauge an ETF’s NAV and so market makers expand the spread to give themselves more room for error.

ETF liquidity: what you need to know

Know your orders

You’re not guaranteed to trade at the price quoted by your broker. The price can be taken by someone else or withdrawn before your order is fulfilled. Sometimes part of your order is filled at the quoted price but the rest of your order is executed at the next best available price. Here are the most common trading orders you can use to manage the prices you receive:

At Best / Market order

You buy or sell immediately at the best available price. A market order enables speed of execution but the price isn’t guaranteed. Your order could be filled at a better or worse price than your broker’s quote. However, you can usually expect execution close to the last quoted price in a reasonably liquid market.

How to Get Started in ETF Investing for Beginners (an easy how-to guide)

If you’re ready to make money in the stock market, but don’t know the first thing about how to get into stocks, this is your opportunity to learn the basics of ETF (Exchange Traded Fund) investing.

Whether you’ve bought and sold the occasional stock in the past, are an old hand at mutual fund investing, or are looking at stocks for the very first time, you can learn everything you need to know about how to invest in ETFs, regardless of your current knowledge or previous experience.

Everyone is a beginner when they start their investment education, but with a little focus and determination, you’ll soon become a confident investor, ready to reap all the financial benefits that ETF investing has to offer.

What is an ETF?

An Exchange Traded Fund (ETF) is simply a collection, or portfolio, of various assets, such as stocks or bonds, that is traded as a single unit on the stock market.

When you participate in ETF investing, you buy shares in a broad range, or index, of companies or financial securities. This gives you the advantage and convenience of owning small pieces of a wide variety of businesses, instead of having to research, buy and manage shares in a large number of individual stocks or bonds.

Unlike mutual funds, ETFs don’t require the active management of a financial advisor to help them offer higher returns than the average commodity traded on the stock market, because they aren’t designed to beat the market.

Instead, ETFs are specifically created to track, follow and provide returns based on the overall performance of a particular sector of stocks or bonds, or of an entire market such as the S&P 500.

An ETF’s holdings, for example, may range from a group of stocks related to and representing the healthcare sector, to a bundle that includes all the major representatives of the Dow Jones market. But regardless of an ETF’s specific holdings, its goal remains the same: to provide investors with a diversified portfolio that trades as a single stock, and that replicates and yields the returns of the market it represents.

Exchange Traded Funds are one of the best investments for helping you to build long-term wealth.

ETF prices rise and fall throughout the trading day just like the price of any single stock on the market does, but they tend to trade at higher volumes because they represent a broad group of stocks. This offers the advantage that your ETF investment will remain more liquid, or easily sold, than the shares of any single stock may on its own.

But although you can quickly and conveniently buy and sell ETFs on the stock market, you don’t have to. ETFs are a great investment vehicle for buying and holding for the long-term because of their minimal management requirements, and they should ideally make up a significant portion of your investment portfolio.

[alert-note] ⇒ Investing Tip: ETF is the best investment vehicle for building your long-term wealth![/alert-note]

ETFs are Much Better than Mutual Funds

Exchange Traded Funds are essentially the same as mutual funds in that they both hold diverse portfolios of financial securities, designed to track the performance of specific indexes. But as we will see, there are three major advantages to investing in ETFs instead of in mutual funds:

  • Less risky fund management
  • Lower trading and holding costs
  • Higher trading convenience

Mutual funds are actively overseen by portfolio managers who are constantly buying and selling fund-owned stocks in an ongoing attempt to hold the best possible collection of financial securities. The goal of these managers is to beat the market average in terms of investment returns and as a result, they are always on the look-out for stocks that they think will outperform the market. But while market knowledge and trading expertise can go a long way toward knowing what to look for in terms of a stock’s potential, the bottom line is that there is no guaranteed method for choosing high performance stocks with consistently high profit yields.

Those who value the supposed advantages of an actively managed fund are willing to pay the high fees demanded by mutual fund investing, but ETF investors benefit from a far more passive management style.

These funds require that a manager make only minimal and occasional asset adjustments in order to keep a portfolio in line with its given index.

So, instead of investing in a fund manager, who will always put you at risk in terms of their investment decisions, when you buy shares in an ETF, you will be investing in the power of the stock market itself.

One of the biggest advantages of ETF investing is that its passive management approach means you will pay very low fund management fees.

While traditional, actively-managed mutual funds generally demand fees of anywhere from 1-2% or higher, ETF fees by comparison usually fall in the range of 0.1 to 1%.

While that may not sound like a very big difference at the outset, over the long-term it can add up to an enormous amount of cash that is far better off in your pocket, than in that of a mutual fund manager who gets paid regardless of how well their stock choices perform.

In addition to their higher management fees, mutual funds can also be difficult to trade. Most investors have to rely on their financial advisors for assistance with this, making mutual funds more costly in an entirely different way, since many ETFs can be traded easily and commission-free through online stock brokers.

[alert-note] ⇒ Investing Tip: Don’t invest in mutual funds – Choose ETFs instead![/alert-note]

Where to Buy ETFs

1. SPDR ETFs

SPDRs (Standard & Poor’s Depository Receipts), commonly called “spiders”, are Exchange Traded Funds that specifically track the S&P 500 stock market.

SPDRs are managed by a company called State Street Global Advisors (SSGA), and are available in various bundles of stocks.

You can learn more about everything SPDRs have to offer at the SSGA website: https://www.spdrs.com/.

2. iShares ETFs

iShares are a large group of ETFs, managed by a company called BlackRock.

These funds track a variety of stock and bond market indexes, and like most ETFs, they can be purchased directly through an online brokerage account.

In comparison with more costly mutual funds, iShares claims to have outperformed as many as 90% of actively managed funds in the S&P category over the past five years.

For details on this and many other ETF strategies and advantages, you can visit the iShares website at: https://www.ishares.com/us/.

3. Vanguard ETFs

Vanguard operates as both a brokerage firm and a fund management company for their ETFs.

They launched the very first index fund for individual investors, and they continue to offer a variety of stock, bond, sector, and even international funds.

You can learn more about Vanguard ETFs, and trade them commission-free, at the company website: https://investor.vanguard.com/etf/.

How and Where to Research ETFs

All of the ETF provider websites mentioned here are great resources for learning more about how to invest in ETFs, and for researching specific funds you can invest in today.

Many ETF providers offer investors a wide range of fund options that allow you to choose from those designed to track a particular stock market, a specific stock market sector, a bond market, a real estate market, or other types of financial securities.

Once you’ve identified some ETFs that pique your interest, you can use the following criteria to help you evaluate their investment potential.

[alert-note] ⇒ Investing Tip: Only buy ETFs from Top ETF Providers.[/alert-note]

The 3 Most Important Things to Consider When Buying an ETF

1. Low Expense Ratio

The annual fee that ETFs charge all their shareholders is known as the Expense Ratio, and this figure is expressed as a percentage.

The Expense Ratio includes the fund management fees we’ve already discussed, as well as other administrative fees and various fund operating costs.

Obviously, the lower an ETF’s Expense Ratio, the better it is for you, since it will translate into more money in your pocket at the end of every year.

For the best-case scenario, you should look for ETFs that offer an Expense Ratio of less than 0.30%.

[alert-note] ⇒ Investing Tip: Only invest in low-cost ETFs – Expense Ratio ⇒ Investing Tip: Only invest in ETFs that offer an annualized return of 8% or higher.[/alert-note]

3. Look for Top ETF Providers

It’s important that you only consider buying ETFs from the largest and most widely traded providers on the market.

These companies have already demonstrated their abilities as the most reliable investment sources, with the best financial performance, and their funds have been accurately built to match well-established stock market benchmarks.

Choosing a top ETF provider with a proven track record, rather than being tempted by the questionably high returns promised by an unknown fund company, will allow you to feel far more secure about exactly who you’re investing your money with.

[alert-note] ⇒ Investing Tip: Only buy ETFs from Top ETF Providers.[/alert-note]

How to Build a Diversified Portfolio

Diversification allows you to spread out your investment dollars over multiple areas, and it’s an important element in the success of every investment strategy for two very important reasons:

  • It minimizes your financial risks
  • It maximizes your financial returns

In order to build wealth effectively over the long-term, and to best protect yourself from financial mishaps, you must learn to think in terms of creating an investment portfolio that includes a variety of investment types.

For the best results, your portfolio should include:

  • Exchange Traded Funds,
  • Value stocks
  • and Income stocks (such as REITs or dividend-paying stocks).

All of these investment vehicles are crucial components of a diversified portfolio, and while value and dividend stocks may bring you higher profits, you should never underestimate the importance of continuing to invest a significant portion of your money in ETFs.

As we’ve seen, ETF investing is an effective method in itself for diversifying your investment dollars, since it allows you to buy into and benefit from the established performance of an entire stock market, or a specific market sector.

Although ETF returns may be somewhat lower than some individual stocks, they also tend to be a little more stable and a little less subject to market volatility and price fluctuations.

Investing in value stocks will help your portfolio to grow at a much faster rate than it might otherwise, owning income stocks will allow you to build a desirable stream of passive income for yourself, and ETFs will go a long way toward bringing you a stable return over the long-term.

A portfolio that contains a mixed of ETFs, value stocks and income stocks will bring you a consistent long-term return.

[alert-note] ⇒ Investing Tip: An ideal portfolio should include ETFs, value stocks and income stocks.[/alert-note]

The Bottom Line

Investing in Exchange Traded Funds is quite simply one of the best ways for you to build your long-term wealth. Not only do they provide an effective way to diversify your investment holdings, by spreading your money across an industry group or an entire market, they are also one of the safest stock market investments since they help to reduce the unpredictability of your portfolio’s performance.

As a new ETF investor, the best way for you to enjoy the most successful results is to take the time to invest in your own education before investing in an actual fund.

Before you buy your first ETF, make a point of learning as much as you can about the Exchange Traded Fund investing approach.

You can start with the ETF provider websites referenced in this article, but don’t be afraid to search further afield for less biased content.

ETFs have become a common investment vehicle, and there is no shortage of information about them on financial websites, in business magazines, and in the literature provided by many investment and brokerage companies.

It’s often a good idea to try picking a few promising ETFs, and tracking their progress over a period of time. This exercise will not only provide you with a practical, ‘hands-on’ approach to learning more about how these funds perform and operate, it will also give you the opportunity to practice your ETF selection strategies before you invest any actual money.

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