4 Best ETF Trading Brokers in 2021

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Affiliate Disclosure DailyForex.com adheres to strict guidelines to preserve editorial integrity to help you make decisions with confidence. Some of the reviews and content we feature on this site are supported by affiliate partnerships from which this website may receive money. This may impact how, where and which companies / services we review and write about. Our team of experts work to continually re-evaluate the reviews and information we provide on all the top Forex / CFD brokerages featured here. Our research focuses heavily on the broker’s custody of client deposits and the breadth of its client offering. Safety is evaluated by quality and length of the broker's track record, plus the scope of regulatory standing. Major factors in determining the quality of a broker’s offer include the cost of trading, the range of instruments available to trade, and general ease of use regarding execution and market information.

Investors & traders seek to lower their risk and increase diversity with a low-cost approach, both of which ETFs provide, along with excellent trading opportunities. Our analysts have evaluated the best brokers for ETF trading – see below.

1
FXTM
The ratings shown on DailyForex.com are determined by hours of research from our editorial team into over 10 factors, including account fees, deposit/withdrawal options, regulatory status, tradable assets, and more.
Best all around broker
High floating leverage + fast execution
2
AvaTrade
The ratings shown on DailyForex.com are determined by hours of research from our editorial team into over 10 factors, including account fees, deposit/withdrawal options, regulatory status, tradable assets, and more.
High level regulation in multiple jurisdictions
Impressive range of tradeable assets including vanilla options and gold options
3
FXCM
The ratings shown on DailyForex.com are determined by hours of research from our editorial team into over 10 factors, including account fees, deposit/withdrawal options, regulatory status, tradable assets, and more.
No dealing desk execution + wide range of trading apps
4
Plus500
The ratings shown on DailyForex.com are determined by hours of research from our editorial team into over 10 factors, including account fees, deposit/withdrawal options, regulatory status, tradable assets, and more.
Best platform for new Forex traders
Trailing stop losses

Top ETF Trading Brokers

FXTM Best all-around: high floating leverage + fast execution.
AvaTrade Highly regulated, choice of fixed or floating spreads.
FXCM No dealing desk execution + wide range of trading apps.
Plus500 Wide range of CFDs + trailing stop losses.

FXTM
5.0/5 in this category
In Summary
Best all-around: high floating leverage + fast execution

We have made FXTM our top-rated broker because in addition to its lengthy track record, it enjoys a very high level of regulation and reputation, and it offers a highly competitive fee structure which tends to keep down the cost of trading.

Unique Features

Headquarters

Cyprus

Regulation

CySEC, FCA, FSC, CMA

Year Founded

2011

Type of Broker

Instant/Market Execution

Minimum Deposit

$10

Maximum Leverage

Flexible

Type of Platform

MetaTrader 4, MetaTrader 5

FXTM, or “ForexTime”, has been around for a long time: they were founded in 2011. Recent years have seen them continue to steadily expand their business, and they are well- regulated by the U.K., Cyprus, Mauritius, and South Africa. The brand is owned by private companies incorporated in the U.K., Cyprus, and Mauritius. Customers of FXTM have access to more than 57 Forex currency pairs and crosses, precious metals, the major energies, equity indices, big cryptocurrencies, and a few individual American stocks. Talking of stocks, FXTM are quite unique in the area of trading stocks, as they enable direct trading through real legal ownership, not just wrapped as CFDs like almost every other similar brokerage offers.

FXTM offers traders a choice between two of the most popular execution models: customers may open either an ECN-type account, or one that trades by “straight-through processing”. Clients have a straight choice between two trading platforms, with both MetaTrader 4 and MetaTrader 5 on offer.

Through their Mauritius regulator, FXTM offer leverage as high as 1000 to 1. In the U.K. and Cyprus, they are limited by law from offering more than 30 to 1.

If you are looking for a broker with a good copy trading program, it is worth taking a serious look at FXTM’s “FXTM Invest” copy trading program.

FXTM Pros & Cons

Advantages

  • Excellent client deposit protection

  • Low minimum deposit

  • Free MT4 add-ons and VPS hosting

  • Good educational tools

Disadvantages

  • No cryptocurrencies or exotic currencies

  • Low leverage for retail traders

  • Internal withdrawal fees and an inactivity fee

AvaTrade
5.0/5 in this category
In Summary
Highly regulated, choice of fixed or floating spreads

AvaTrade was founded in 2006 in Dublin, Ireland. They are one of the largest and most famous Forex / CFD brokers in the world and became well-known for offering their clients a choice of fixed or floating spread cost of trading models. They enjoy an extremely high and strong level of regulation, making them a favorite for traders who are extremely nervous about the security of their deposit, which in Ireland can be protected by a strong investor deposit protection provision. AvaTrade is directly regulated in Ireland (and by extension, the European Union), Australia, Japan, South Africa, and the British Virgin Islands. Outside the European Union, Ava’s maximum leverage offered runs as high as 400 to 1.

Unique Features

Headquarters

Ireland

Year Founded

2006

Type of Broker

ECN/STP

Minimum Deposit

$100

Maximum Leverage

1:400

Type of Platform

MetaTrader 4, MetaTrader 5, Proprietary platform, Web-based

In addition to their longevity and safe reputation, clients know that through AvaTrade they have access to a broad range of asset classes through which diversification can be achieved successfully: AvaTrade offers trading in over 55 different Forex currency pairs, 17 commodities, 20 equity indices, 14 cryptocurrencies, plus 66 individual stocks and shares. Even better, and unusually, 2 bonds and 6 ETFs are also on the menu. The diversity offered here stands out.

Whether you are located within the European Union or not, all branches of AvaTrade will offer you negative balance protection, above and beyond what is mandated by the law. This means that under no circumstances will any client of AvaTrade ever be held liable by the firm for an amount larger than their deposit.

 

AvaTrade Pros & Cons

Advantages

  • Well-regulated globally, with the Bank of Ireland, the primary regulator

  • Low minimum deposit and in-depth educational tools

  • Wide asset choice across seven sectors

  • Superior mobile trading platform

Disadvantages

  • Low leverage for retail traders

  • High quarterly inactivity fee

  • Unacceptable cost for AvaProtect

FXCM
5.0/5 in this category
In Summary
No dealing desk execution + wide range of trading apps

FXCM is a UK-based broker since 2015 after a forced relocation from the US, where it catered to clients since 1999. Since its acquisition by Leucadia in 2015, part of US publicly listed merchant bank Jefferies Financial Group, FXCM embarked on an impressive turnaround. Clients have access to the MT4 trading platform, its proprietary Trading Station, newly added automated trading platform Capitalise, social trading market-leader ZuluTrade, and eight specialty trading platforms for algorithmic traders. It remains one of the most impressive and competitive selections among all brokers. With a minimum deposit of just $50, FXCM remains accessible to all types of traders.

Unique Features

Headquarters

United Kingdom

Regulation

FCA, ASIC, FSCA

Year Founded

1999

Type of Broker

No Dealing Desk, Dealing Desk

Minimum Deposit

£300

Maximum Leverage

1:30

Type of Platform

MetaTrader 4, Proprietary platform, Web-based

Asset selection is compact. FXCM maintains just 40 currency pairs, seven cryptocurrency pairs, and eleven commodities. Equity traders get 100+ CFDs from the US, the UK, the EU, and Hong Kong, plus fifteen index CFDs. Completing the list are a handful of in-house created Forex and equity baskets based on themes and one bond CFD. FXCM does offer active traders a competitive pricing environment with a volume-based rebate program. The superior execution statistics at FXCM add another distinct advantage to the overall trading environment

FXCM Pros & Cons

Advantages

  • Superior trading platform selection for dedicated automated trading solutions

  • A five-tier volume-based compensation program plus superb trade execution

  • Low minimum deposit, high leverage, and VPS hosting

  • Excellent education and research via FXCM Plus and superior trading tool Capitalise AI

Disadvantages

  • Above-average cost structure in the commission-free account

  • Limited asset selection

Plus500
4.5/5 in this category
In Summary
Wide range of CFDs + trailing stop losses

Plus 500 offers a wide choice of Forex pairs and non-Forex assets as commission-free CFDs. While this broker neither supports automated trading solutions nor social trading, manual traders have a clean user-interface, guaranteed stop-loss orders at an additional cost, alerts on price movements, and a trader sentiment indicator. This FTSE 250 listed broker maintains a safe and secure trading environment and offers a wide range of equity CFDs and an extensive selection of options contracts, allowing more sophisticated trading strategies. Plus 500 takes an opportunistic approach to Bitcoin and cryptocurrencies, offering a choice of 14 crypto pairs for traders.

Unique Features

Headquarters

Israel

Regulation

CySEC, FCA, ASIC, FMA, FSB, MAS

Year Founded

2008

Type of Broker

Market Maker

Minimum Deposit

$100

Maximum Leverage

1:30

Type of Platform

Proprietary platform, Web-based

Traders using smartphones or tablets will feel at home at Plus 500, where a report suggests mobile devices account for over 40% of all executed trades. Plus 500 does not offer in-house research and does not source it from third-parties, while the limited educational content is below average. It does maintain a News and Market Insights section, where it uploads commentary several times per week, but not necessarily daily. Despite its few shortfalls, it remains a highly ranked CFD provider on Google Play and Apple App Store, particularly with millennial traders.

 

Plus500 Pros & Cons

Advantages

  • Well-regulated globally

  • Broad asset selection in equities and options

  • Guaranteed stop-loss order

Disadvantages

  • Low leverage for retail traders

  • Sub-standard trading platform without support for automated or social trading

  • No research and limited, below-average educational content

  • Lack of trading tools

Why Trade ETFs?

Similar to every emerging asset class, ETFs had a rocky start and faced attempts to shut them down. The industry shook off its starting pains and expanded in 1998 with the launch of sector ETFs, in 2002 with bond ETFs and in 2005 with currency ETFs. The first leveraged ETF became available in 2006, followed by the actively managed ETFs in 2008. Today, there are almost 7,000 ETFs globally, with more than $7 trillion under management. Over 85% of financial planners either use them or advise their clients to add them to portfolios, per data from a 2020 Financial Planning Association survey.

Most ETFs remain passive investment vehicles tracking an index, sector, sub-sector, commodity, currency, or bond. Over the past decade, capital has flowed from the mutual fund sector into ETFs, which offer similar or superior returns for significantly lower fees. The demand for ETF trading was noticed by online multi-asset brokers, who started to add them to their asset selection. More investors and traders seek to lower their risk and increase diversity with a low-cost approach, both of which ETFs provide, along with excellent trading opportunities.

Exchange-traded funds (ETFs) are a great way to get exposure to baskets of stocks and shares with ease and at much lower cost than buying large quantities of different equities directly would incur. They were introduced in 1993 in the US and in 1999 in Europe. The first known ETF, Index Participation Shares, was available in 1989 as an S&P 500 proxy. It traded on the American Stock Exchange (AMEX), now known as NYSE MKT, and the Philadelphia Stock Exchange (PHLX), presently the NASDAQ OMX PHLX, which is the oldest stock exchange in the US. A successful lawsuit by the Chicago Mercantile Exchange ended the availability of this product. Canada launched a similar asset in 1990, the Toronto Index Participation Shares, and its swift traction and popularity resulted in AMEX attempting to duplicate a product in compliance with the US Securities and Exchange Commission (SEC). It led to the 1993 launch of the Standard & Poor's Depositary Receipts, with the ticker symbol SPY, also referred to as SPDR or Spiders, which became the largest ETF in the world. It tracks the S&P 500 Index, the favorite benchmark of mutual fund managers.

Before considering trading ETFs, it is critical to understand why they can benefit investors and traders alike, instead of blindly following the crowd. Several essential benefits exist with ETFs, which explain the ongoing demand. The demand is expected to accelerate this decade at the primary expense of mutual funds.

Top Nine Reasons Why to Trade ETFs and ETFs Trading Advantages

  1. Trading Costs - ETFs generally have lower trading costs than mutual funds, which will make a notable difference in your portfolio. Some mutual funds have front-end or back-end loading fees, and while the pricing trend is heading lower, an average cost near 1.5% of assets under management (AUM) applies. In comparison, ETFs carry an average charge closer to 0.5%.

  2. Tax Advantages - ETFs have a tax advantage over mutual funds as capital gains taxes remain delayed and investors choose when to trigger them. The passive management of ETFs versus active management by mutual funds also results in less trading frequency and preferential tax treatment in most jurisdictions.

  3. Liquidity - Traders can transact in ETFs daily, similar to equity trading since the fund is available in exchanges (hence the name “exchange-traded fund”). Mutual funds remain priced at the end of each day following the computation of the net asset value (NAV) after the close of trading. Most brokers offer ETFs and expand their selection, allowing more traders access to one of the fastest-growing asset classes globally.

  4. Lower Volatility - ETFs remain less volatile compared to individual equities as they grant exposure to a sector or sub-sector. Earnings misses and downgrades will impact the price of an ETF less due to the composition of ETFs.

  5. Diversification - Investors and traders can swiftly diversify their portfolios with sector ETFs, allowing less capitalized portfolios to optimize their trading approach with a low-cost product.

  6. Hedging - ETFs present an excellent tool to hedge portfolios. Inverse ETFs allow IRA and 401(k) portfolios to participate in market action during bear markets, earning money from a contraction in prices rather than remaining on the sidelines in a waiting pattern.

  7. Margin Trading - Unlike mutual funds, ETFs are available in margin trading accounts, allowing traders to improve the efficiency of their portfolios.

  8. Transparency - Ongoing updates about NAV and fund composition ensures complete transparency, allowing traders to know what their portfolio holds.

  9. Speculative Contracts - While investors get an excellent long-term asset class, short-term traders gain one of the most comprehensive market representations for trend trading strategies.

ETFs & Types

While the purpose of the initial ETF was price-tracking of equity market indices, and SPY was the largest ETF globally, the maturity of the sector led to numerous ETF product launches. It assisted the growth and popularity of ETFs and created an equity-like trading instrument, available on margin, for long and short positions, and is traded throughout the day.

Some of the most demanded ETF variants include

  • Broad-based Equity Index ETFs - These are the original ETFs and include Global Equity Index ETFs, tracking indices like the S&P 500, the FTSE 100, the DAX 30, the HSI 50, or the ASX 200. It is similar to buying the index itself, but ETFs have a cost advantage while an index funds one with dividends. Therefore, the benefits of a broad-based equity index ETF depend on the trader and are less notable than in other types of ETFs.

  • Sectorial Equity Index ETFs - As the name suggests, they grant exposure to market sectors and remain the most popular ETFs. Rather than buying individual equities, traders get access to the broad sector or sub-sector, such as technology, healthcare, alternative energy, etc., and lower their risk profile while gaining diversification. Sectorial equity index ETFs additionally serve as outstanding hedging tools.

  • Currency Index ETFs – These present another excellent opportunity to hedge a portfolio with a basket of currencies. They are widely deployed diversification assets and offer exposure to the most liquid sector of the global financial system.

  • Bond Index ETFs - A collection of corporate and government bonds, from municipal to federal, bundled together into one product. Bonds continue to enjoy demand from passive investors seeking a low but steady income stream with significantly less volatility. Bond index ETFs attempt to boost the returns of this go-to passive asset.

  • Commodity ETFs - Individual commodities are highly volatile, and not all brokers support a broad choice. Through commodity ETFs, traders gain exposure to an attractive growth segment while lowering their exposure to price movements and achieve more stability.

ETF Trading Strategies

Since the global ETF market continues to expand and likely top $10 trillion this decade, not only is the demand from investors and traders rising, but several ETF trading strategies show dominance in portfolios. They increase the efficiency of this passively managed product and actively contribute to portfolio diversification, risk reductions and income generation.

The most effective ETF trading strategies include

  • Core-Satellite Strategy - Potentially the most-used ETF trading strategy, it consists of an ETF that represents between 30% to 40% of the total portfolio and, therefore, the core of it. Other positions consist of ETFs up to 10% of the portfolio, the satellite portions of this strategy. The percentages can differ based on preference, but the core must remain the largest position. Some portfolio managers use a passively managed ETF as the core and add actively managed products to create more growth potential. The options for how to construct the core-satellite strategy depend on individual preferences, but it generally results in lower trading costs and volatility.

  • Cash Equitization - While cash in a portfolio fulfills an essential part, especially for leveraged ones, it also represents a drag on investment returns, known as a cash drag. A cash equitization strategy will park the cash in ETFs like money market ETFs or short-term bond ETFs. Each portfolio builds up small cash reserves during the trading process, and while often overlooked, they significantly pose a drag on return on investment (ROI) over time. A well-designed cash equitization strategy via ETFs can deliver a notable efficiency boost.

  • Shorting ETFs - Another well-deployed use of ETFs is for hedging purposes. For example, a trader may go long on several individual equities in the healthcare sector and hedge it by going short in a sector ETF. There are numerous possibilities on how to combine short-selling ETFs within a well-diversified portfolio.

  • Pairs Trading - Some traders prefer to use ETFs in pairs to gain a double advantage. One option would be to buy a software sector ETF and sell a technology sector ETF or sell an oil commodity ETF while purchasing an alternative energy sector ETF.

ETF Brokers Checklist

Before selecting a broker and starting to trade ETFs, make sure you conduct your due diligence and research to gain the required knowledge to move ahead. Ask yourself: what is ETF trading? Regardless of the asset type, learning precedes earning. The growing demand for ETFs resulted in many brokers providing them as an asset, but most may grant a CFD rather than the physical fund. CFDs remain ideal for traders, but long-term investors must own the underlying ETF to gain the advantages it can deliver.

Here is an ETF broker checklist to consider when evaluating one

  • Broker History - High demand results in new brokers entering the highly competitive online brokerage industry. While many exciting offers exist, it remains safer to operate a portfolio with an experienced one. Brokers that have been around for over a decade can be mixed with smaller portfolios at newer ones, applying the core-satellite strategy popular in ETF trading.

  • Broker Regulation - Trading with an unregulated broker carries unnecessary and avoidable risk. While the current global regulatory environment turns anti-competitive, well-established brokers opt for business-friendly regulation away from primary jurisdictions and supplement any shortfalls with additional security and protection measures. Always check the regulatory track record to identify how the management team operates.

  • Commissions and Fees - These will have the most significant direct impact on your portfolio. Trading with a low-cost broker will boost your ROI significantly, which compounds over time. Most traders ignore this and only evaluate costs on a trade-by-trade basis.

  • Deposits & Withdrawals - Traders must consider the flexibility in minimum deposit requirements, supported methods, internal and external fees, and withdrawal times. All will factor in how well a portfolio-building strategy can boost long-term profitability.

  • Customer Support - While most traders never require customer support, having access to one in case of unexpected events is a necessity. A trustworthy broker will ensure that traders have convenient methods to contact customer support, with swift response times and in multiple languages.

  • International Presence - Having a local representative office becomes less important in a digitalized world, but some brokers host seminars and conferences to meet their growing client-and-partner base.

Pros & Cons of ETF Trading

When answering the question of what is ETF trading, there are notably more pros than cons. It is another reason ETFs attract existing capital from mutual funds, as well as new capital seeking a low-cost, low-volatility asset that trades like equities. ETF trading is available in margin and retirement accounts, with the possibility to go long and short.

The pros of ETF trading

  • Low trading costs

  • Notable tax advantages

  • Broad trading availability

  • Lower overall volatility

  • Excellent diversification

  • Smart hedging tool

  • Margin trading

  • Enhanced transparency

The cons of ETF trading

  • Dividend disadvantage via delays and lower yields

  • Absence of a dedicated ETF trading platform at most brokers

  • Higher costs than equities

  • Less exposure to micro-cap assets

Methodology (How We Test/Choose)

We reviewed over 100 brokers based on eleven criteria. Each research consists of over 2,000 words and lasted more than ten hours. Over 100 brokers were reviewed in-depth and from a trader's perspective, ignoring the marketing tactics deployed by some to confuse retail traders. Therefore, we sourced the list of our Top Three ETF Brokers from more than 200,000 words of dedicated research compiled over 1,000 hours, ensuring the most comprehensive approach to identify the best ETF brokers.

The eleven criteria used in our research consist of

  • Regulation and Security

  • Trading Costs

  • Asset Selection

  • Account Types

  • Trading Platforms

  • Unique Features

  • Research and Education

  • Customer Support

  • Bonuses and Promotions

  • Account Opening Process

  • Deposits & Withdrawals

What is the Difference Between an ETF and a Stock?

An ETF grants exposure to a sector or index and always includes multiple assets. A stock is an individual asset, carries greater risk and volatility but also more profit potential. Trading ETFs additionally results in higher fees and fails to provide access to micro-stocks or emerging trends in their early stages.

What is the Difference Between an ETF and a Mutual Fund?

An ETF trades like a stock throughout the trading session. A mutual fund does not update its price until the end of the trading session, following the calculation of NAV. Therefore, investors and traders gain more liquidity and lower costs with an ETF versus a mutual fund.

FAQs

Are ETFs a good investment?

It depends on the investment strategy and preferences of the investor, but overall, ETFs remain an attractive asset. Most portfolio managers can use it to improve the returns of a well-diversified portfolio, hedge risk, and reduce cash drag.

Are ETFs good for beginner traders?

Most beginner traders will benefit from ETFs amid their low-cost structure and low volatility. ETFs also allow less capitalized portfolios to achieve cross-asset and cross-sector diversification while lowering the risk profile, shielding new retail traders from the volatile price action of equities.

Can you make money trading ETFs?

ETFs, like all other assets, require a well-structured trading strategy, capital, and patience. The profit potential ranks well above mutual funds but below equity trading. Skilled portfolio managers can achieve above-average returns with ETF trading.

How do ETFs work?

ETFs trade exactly like equities. Traders can buy and sell them throughout the trading session from a brokerage account. ETFs are also available in margin accounts.

Are ETFs a safe investment?

ETFs remain as safe an investment as equities, especially those provided by a reputable provider. Traders must apply the same due diligence and risk assessment as with other assets.

How much do ETFs cost?

The fee structure depends on the ETF, but the average is close to 0.50% of AUM. Therefore, they are notably less expensive compared to almost 1.50% charged by mutual funds. Brokers may also charge a commission per transaction, similar to equity trading. Leveraged overnight ETF positions face swap rates.

Do ETFs have minimum investments?

Unlike mutual funds, in which investors face a minimum investment, ETFs do not require one. The minimum transaction size is generally one share of the ETF, but some brokers may increase it internally.

Huzefa Hamid

I’m a trader and manage my own capital. I trade the major Forex pairs, some Futures contracts, and I rely entirely on Technical Analysis to place my trades. Today, I am also a Senior Analyst for DailyForex.com. I began trading the markets in the early 1990s, at the age of sixteen. I had a few hundred British pounds saved up (I grew up in England), with which I was able to open a small account with some help from my Dad. I started my trading journey by buying UK equities that I had read about in the business sections of newspapers. The 1990s were a bull market, so naturally, I made money. I was fortunate enough in my early twenties to have a friend that recommended a Technical Analysis course run by a British trader who emphasized raw chart analysis without indicators. Having this first-principles approach to charts influences how I trade to this day.

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