feed linkedin-square facebook-square twitter-square question-circle-o

How to buy ETFs online

Dec 2018
Top 2 brokers to buy ETFs
DEGIRO
Saxo Bank
How to buy ETFs online

ETFs or exchange-traded funds has become very popular since their first appearance in 1993. This popularity is due to their low-cost and since they are easy to trade.

In this article, we explain jargon-free how to buy ETFs online and also reveal which are the best brokers for buying ETFs. It is not as easy as watching TV series but don’t worry it is not rocket science either.

You will also learn the difference between US and EU ETFs and will understand which one is better for you.

Now, let's take a look at the 6 steps to buy ETFs online. Jump to the ETF 101 section first if you don't know what is an ETF and how it does work.

How to buy ETFs online
6 steps of buying ETFs online

 Buying ETFs online is not rocket science. Follow this 6-step plan:

  1. Target the country or sector you want to trade with
  2. Filter ETFs by size and expense ratio
  3. Choose the ETF domicile, stock exchange, currency
  4. Find your broker
  5. Buy the ETF
  6. Monitor your ETF position regularly

6 steps for buying ETFs online

Step 1: Target the country, region, or sector you want to trade with

ETFs can be a tool for you to bet on how a country, region, or sector will perform. For example, if you think that the US market will go up, you can buy an ETF which tracks a stock index compiled of US stocks, such as the S&P 500 Index. If you think that not the whole US market but the technology sector will go up, you can buy an ETF which tracks a stock index containing US technology stocks, for example, the NASDAQ 100.

For targeting and filtering ETFs you will need an ETF screener. Use justETF for EU-domiciled ETFs and ETF.com for US ETFs.

Step 2: Filter for the ETFs by size and expense ratio

You will find several ETFs you can choose from, so some criteria can help in the filtering. The ETFs with bigger sizes are better as they are more liquid, which means more people trade with them. The ETF size is specified in AUM or assets under management. There is a rule of thumb you can follow: the ETFs with AUM higher than $100 million are usually more liquid.

The ETFs with lower expense ratios are better. The expense ratio shows what is the average annual fee of the ETF. The ETFs with lower than 0.1% expense ratios are very good. 

Step 3: Choose the ETF domicile, stock exchange, and currency

The domicile means the country where the ETF was issued. The majority of the ETFs have EU or US domicile. Different domiciles most probably would mean different taxation for you. We are not here to give you tax advice, so always check this topic with your accountant. One more thing. After January of 2018, EU investors usually cannot buy US-domiciled ETFs due to the new PRIIPS regulation.

The stock exchange listing does not equal to the domicile. An ETF can be traded on several stocks exchanges. Choose the stock exchange with the lowest commission. The commission depends on your broker.

The different stock exchange could mean different currency. Choose an ETF with the same currency as your brokerage to avoid currency conversion fees.

Japanese ETF of BlackRock
Domicile US Ireland
Stock exchange, currency ARCA NYSE USD London Stock Exchange GBP, USD
NASDAQ USD XETRA EUR

Let's take as an example the Japanese ETF of BlackRock. BlackRock issued its ETFs covering the main Japanese stock market in both Europe and the US. In both continents, you can trade this ETF on several exchanges and in different currencies.

Step 4: Find your broker

After you decided which ETF you want to buy, you have to find a good online broker. Brokerchooser will help you here: get a free recommendation by answering a few questions, or read further to get a general broker recommendation.

Free broker recommendation

At broker recommendations, we take into account the broker’s fees, trading platform, accessible markets to trade, and how easy it is to open an account. Safety is also highly important, but since we recommend only safe brokers, you do not have to worry much here.

After you opened your account you will need to deposit money into it.

Step 5: Buy the ETF

You have the target, the account, and the cash. The last step is to push the buy button. You log in to your online trading platform, search for the ETFs you wish to buy and click buy. When placing an order, you can choose from different order types. 

Step 6: Monitor your ETF positions regularly

You are done, your ETFs are bought. Now it is key to monitor your investments. If you bought the ETF for holding it for a longer term, you might check it on a monthly or yearly base.

For short time buyers, the position management could mean setting up the stop-loss price of where to cut the losses and the target price of where you want to sell the ETF with a profit.

Now that you have mastered the 6 steps of buying ETFs, take a moment to look at the top four brokers we have selected for you.

How to buy ETFs online
Best 4 brokers to buy ETFs online

If you just start to explore how to buy ETFs online, we recommend you to choose between the following four brokers. We tested all four, and we have live accounts with them.

We selected these four brokers based on these three criteria:

  • the broker has at least 4.0 / 5.0 overall score
  • the broker offers at least 1,000 ETFs
  • a newcomer can easily get around at the broker's platform 

First and foremost, here is a table with an overview of which location you can open an account with each of the brokers:

  DEGIRO Saxo Bank Swissquote Tradestation
Broker intro Dutch discount broker Danish investment bank Swiss investment bank US stockbroker
Overall score 4.6 4.7 4.5 4.4
Fees score 5 stars 3 stars 2 stars 4 stars
Award Best discount broker Best trading platform Best for funds
ETFs (#) 5,400 3,100 1,300 2,200
  Visit broker Visit broker Visit broker Visit broker

For online brokers available in your country, check out our broker finder. If fees are on top of your agenda, you will enjoy digging into the ultimate fee comparison table.

Now, let's get to the list of the 4 best brokers one by one:

 

DEGIRO

15

  DEGIRO
Summary DEGIRO is a Dutch discount broker established in 2008. It is regulated by the Dutch FMA.
Web platform score 4 stars
Recommended for Price-sensitive buy and hold investors and traders looking for only execution
  Visit broker

DEGIRO offers one free ETF trade per month.

How to buy ETFs online - DEGIRO web trading platform

 

Saxo Bank

6

  Saxo Bank
Summary Saxo Bank is a Danish investment bank. It is regulated by more than 10 financial authorities, including the top-tier FCA.
Web platform score 5 stars
Recommended for Investors and traders looking for a great trading platform and solid research
  Visit broker

How to buy ETFs online - Saxo Bank web trading platform

 

Swissquote

11

  Swissquote
Summary Swissquote is Swiss online broker with its own banking background. It is listed on the Swiss exchange and regulated several authorities globally, including the top-tier FCA.
Web platform score 3 stars
Recommended for Beginners and investors
  Visit broker

How to buy ETFs online - Swissquote web trading platform

 

TradeStation

  Tradestation
Summary TradeStation is a US stockbroker regulated by FINRA, the top-tier US regulator.
Web platform score 4 stars
Recommended for Traders wanting great research tools and preferring the US markets
  Visit broker

How to buy ETFs online - TradeStation web trading platform

 

How to buy ETFs online
What is an ETF?

An ETF is fund traded on a stock exchange. A fund can include any assets types, like equities, bonds, commodities, and even forex. One fund usually has more assets. For example, a fund that is following the S&P 500 Index holds 500 equities. The most popular ETFs are equity ETFs that follow popular equity indexes, like NASDAQ 100 and S&P 500.

An ETF is issued by an asset management company like Vanguard or BlackRock. One asset management company can issue more ETFs.

Why are ETFs so popular? In a few words: low cost, easy access, endless choices, and liquidity.

ETF - low cost

Investing in ETFs is usually much cost-efficient than investing in mutual funds. The overall annual cost of an ETF can be below 0.1% while mutual funds often charge 1-2% management fee per year. Why ETF is cheaper? Because ETFs are usually passive investments. ETFs just automatically replicate the indexes or other asset baskets, and there is not a fund manager who continuously rebalance the fund's portfolio in the hope of higher returns.

ETF - easy access

ETFs are traded on exchanges. Therefore, you can buy them straight away. Contrary, the buying process of a mutual fund is more complicated and you can transact only once a day at a fixed price. The low minimum investment amounts can also help you to easily access ETFs. At mutual funds, the minimum investment amounts can be as high as $3,000.

ETF - endless choices

You can choose from many regions, sectors, or anything you are interested in. You anticipate the Chinese economy will fly? You can invest an ETF which tracks Chinese indexes. You like the healthcare and want to invest in that? Choose an ETF which tracks healthcare companies. You can already invest in crypto ETFs as well.

ETF - liquidity

The ETFs are more liquid than mutual funds. You can trade with the ETFs throughout the day and the prices change continuously.

How to buy ETFs online
US or EU ETFs?

After you know the basics of how to buy ETFs online and which brokers are the best for buying ETFs, let's talk a little about the landscape of US and EU ETFs.

We focus on these two regions because the US accounts for ~70%, while the EU accounts for ~20% of the total ETF market.

When we talk about US or EU ETFs, we refer to the domicile, i.e. the country/region in which the ETF was issued. E.g. the S&P 500 Index can have a US-domiciled and an EU-domiciled ETF. They track the same index but have a different domicile.

When you hesitate between US and EU ETFs, there are three aspects to take into account: taxation, liquidity, and regulation. 

Taxation

The taxation of ETFs depends on

  1. the domicile of the ETF and
  2. your tax residency.

You may face withholding tax, income tax, and capital gain tax when you trade with ETFs. Always ask your accountant or your tax advisor on this topic.

Liquidity

As of 2018 December, the EU ETF market has a value of $800 bn. You surely think that this is huge. Yes, it is but lags behind US's $3,700 bn. The differences in the size have a huge impact on the liquidity, i.e. how easily you can buy or sell the ETF. The more liquid the ETF, the more likely to buy or sell the ETF in a very short time and at a very low spread cost. The EU ETFs are less liquid than the US ETFs. Therefore you will likely have higher spreads at EU ETFs which means a higher cost. 

Regulation

From January 2018, the European clients are usually blocked from trading many US-domiciled ETF. That's because US ETFs lack the KID or Key Information Document. The is KID is required by the PRIIPS (Packaged retail investment and insurance-based products), a European regulation came into force at the beginning of 2018. The biggest ETF issuers said that they would not intend to provide the KIDs for US-domiciled ETFs. Instead, EU clients could trade with similar EU-domiciled ETFs which comply with the new PRIIPS regulation.

How can you know that an ETF is fully compatible with the EU regulation? Just look at the ETF's name: those having the "UCITS" adjective are surely compatible with the EU regulation and are EU-domiciled. 

So, you cannot trade with US-domicile ETFs at all? Yes, you can, but is quite complicated. Some brokers may allow you to qualify as a professional client. In this case, you will need a large portfolio, over €500,000, trading experience, and some professional background. 

How to buy ETFs online
Bottom line

How to buy ETFs online? How can I buy ETFs? I want to invest in ETFs online! I want to buy ETFs! Were these things you were saying until now?

Just follow these six easy steps to buy ETFs online:

  1. Target the country, region, or sector you want to trade with
  2. Filter ETFs by size and expense ratio 
  3. Choose the domicile, the stock exchange and the currency of the ETF
  4. Find your broker
  5. Buy the ETF
  6. Monitor your ETF positions regularly

If you are still in doubt which broker to choose, we compiled a brief summary to help: 

  DEGIRO Saxo Bank Swissquote Tradestation
Award Best discount broker Best trading platform Best for funds
Overall score 4.6 4.7 4.5 4.4
Fees score 5 stars 3 stars 2 stars 4 stars
ETFs (#) 5,400 3,100 1,300 2,200
  Visit broker Visit broker Visit broker Visit broker

Back to How To Invest Guide

AUTHOR

Gergely Korpos
Gergely Korpos
Co-founder, CPO
Gergely's aim is to bring more clarity into personal investing. He has 10 years of experience in financial markets with GE Money, KPMG and MOL. He concluded thousands of trades as a commodity trader and financial portfolio manager
Follow Brokerchooser on Twitter

Share

Comments