About ETF Brokers

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By Carol Luther
eHow Contributing Writer

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Exchange Traded Funds (ETFs) have been popular with many investors for nearly twenty years. These funds track a securities index like the Dow Jones, the Standard and Poor or the NASDAQ Composite. The indexes measure the value of stocks, based on changes in the price of their shares. Some ETFs track commodities like gold, silver and oil. They are traded like stocks and mutual funds. Trading fees for ETFs are usually lower than those for mutual funds. The competence of the financial firms that sponsor and manage ETFs is a major factor to consider when investing in these funds.

History

In 1989, the American Stock Exchange and The Philadelphia Stock Exchange offered the first ETF, Index Participation Shares, to investors. This fund had a short run due to a legal controversy. The Toronto Stock Exchange started marketing a popular EFT that fund tracked shares in the TSE 35 stocks in 1990. The Toronto Stock Exchange later added an ETF that tracked the TSE 100 as well. The AMEX created a new ETF investment vehicle, in 1993, the Standard and Poor Depository Receipts. It trades under the stock ticker symbol (SPY). By 1998, the New York Stock Exchange offered the Dow Diamonds (DIA) and in 1999, PowerShares QQQQ (QQQQ) began trading on the NASDAQ. Today hundreds of U.S. and international ETFs are available through reputable brokers.

Significance

Buying through qualified brokers is the recommended way to start investing in ETFs. Selecting a broker with the appropriate experience and insight is the key to realizing a profit with ETFs. Some financial advisors also suggest that you spread your risk by using more than one brokerage firm.

Considerations

For many people, discount online brokers have proven to be the lowest cost way to invest in ETFs. A full service brokerage firm is also an attractive option for people with little investment experience. You can expect to pay a higher commission when you buy and trade ETFs. However, you will have access to financial advisors whose recommendations help you build your portfolio.

Features

Online brokers have different investment minimums and trading fees. Their experience with ETFs can vary widely. When you use a discount broker, be prepared to conduct your own research and to track your investment. Before you select a discount broker, compare them to assess costs that may affect your overall return. A few discount brokers charge zero commission fees on ETF trades, but they may have minimums for trading or charge account maintenance and inactivity fees.

Benefits

Depending on how many trades you expect to make a year, a discount broker that charges between $5.00 and $20.00 per trade, with no additional fees can actually be the best bargain for ETF investors. Look for additional services that make trading more convenient, like trading by phone instead of or in addition to online trading. Some discount brokers accept deposits to your trading account by check, direct deposit or from credit cards. These conveniences, customer service and experience with ETFs separate the good brokers from the great ones.