Exchange-traded funds (ETFs) are a popular way to invest in the stock market. After all, they offer instant diversification, attractive potential returns, reasonable costs, and less risk than buying individual stocks. To choose our best brokers for ETFs we examined costs, commissions, research and screening tools, and ETF options available on each platform.

Best Online Brokers for ETFs:

Charles Schwab: Best Online Broker for ETFs

4.7
  • Account Minimum: $0
  • Fees: Free stock and ETF trading, $0.65 per options contract
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Why We Chose It

Schwab is our choice for the best overall online broker for ETFs due to the strength of its ETF screener combined with the general quality of its overall platform, including portfolio analysis tools for everyday investors. Schwab makes the process of investing in ETFs simple while still providing comprehensive research and multi-criteria screening for investors who want to conduct in-depth research prior to investing.

Pros
  • Comprehensive portfolio analysis tools

  • StreetSmart Edge platform is customizable and robust

  • Schwab is an excellent broker overall

Cons
  • Investors must use StreetSmart Edge for the best ETF screener

  • Schwab can be a bit pricey on mutual funds

  • Futures are traded on a separate platform

Charles Schwab: Best ETF Screeners

4.7
  • Account Minimum: $0
  • Fees: Free stock and ETF trading, $0.65 per options contract
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Why We Chose It

Schwab’s ETF screener through StreetSmart Edge comes with over 150 screening criteria, and the addition of socially responsible investing (SRI) criteria makes finding an ETF aligned with your values straightforward. The quality of the StreetSmart Edge ETF screener does make the website seem basic by comparison, so it is worth learning the platform to take full advantage of Schwab’s ETF scanning capabilities.

Pros
  • StreetSmart Edge ETF screener has 150+ screening criteria

  • Screener results can be turned into a watchlist or exported

  • ETF screener is available to both prospects and clients using StreetSmart Edge

  • ETFs can be filtered according socially responsible investing criteria

Cons
  • Website screener is a poorer quality than the StreetSmart Edge ETF screener

  • High fees on some mutual funds

Interactive Brokers: Best ETF Research

4.6
  • Account Minimum: $0
  • Fees: Maximum $0.005 per share for Pro platform or 1% of trade value, $0 for IBKR Lite
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Why We Chose It

The Interactive Brokers (IBKR) screener stands out because the powerful toolset can be applied to all of IBKR's asset offerings, including ETFs. This means you can customize the Mosaic interface with an ETF-specific watchlist, pulling in the market and news information you want to see from a trading perspective. You can also leverage Fundamentals Explorer to pull in hundreds of data points, more than 80 news wires and reports, and thousands of analyst ratings.

IBKR also has a mutual fund replicator that helps users swap out any mutual fund for an ETF with lower management fees. Traders looking to use an ETF to hedge a position can also use the Beta Hedge order to find the right ETF for the job.

Pros
  • Robust platform with the lowest margin rates

  • Can trade an extensive range of asset classes in 135 markets across 33 countries

  • Research capabilities and tools for all asset classes are excellent

Cons
  • Trading platform can be intimidating to new investors

  • Trading interface may be complicated for users only buying and holding ETFs

Final Verdict

Cost used to be the major factor in evaluating online brokers. As the vast majority of online brokers now offer commission-free ETF and stock trading, we need to look beyond the fee and into the tools brokers provide you to find the right ETFs for your portfolio. Specifically, does a broker make it easy to screen the vast universe of ETFs according to your specific criteria? We found that Schwab and Interactive Brokers both do a wonderful job of helping you find ETFs, but we gave Schwab the edge overall because it is a friendlier platform for newer investors and provides complementary portfolio tools to support them. Interactive Brokers is aimed more at intermediate-to-advanced investors and traders, so there is less focus on getting newer investors up to speed. As with all of our top-ranking brokers, you really wouldn't go wrong choosing either one.

What Is ETF Trading?

An exchange-traded fund (ETF) is a basket of securities that you buy or sell through your broker. ETFs generally track a specific index, such as the S&P 500, Dow Jones Industrial Average (DJIA), or Nasdaq 100. ETFs have ticker symbols and intraday price data, and they are bought and sold just like stocks on stock exchanges. You can gain exposure to virtually any market or industry sector by trading ETFs, so they can be an important diversification tool.

Who Should Invest in ETFs?

ETFs can be an easy way for investors to diversify their portfolios. In addition, ETFs offer lower costs and greater tax efficiency than actively managed mutual funds. And since they trade like stocks, they are easy to buy and sell during market hours. ETFs are worth considering if you are looking for these benefits and prefer a "set it and forget it" strategy rather than researching individual stocks. Overall, however, any investor can benefit from ETFs. Advanced traders will even use them to set up multi-asset or multi-market trades as you can find an ETF to act as a proxy for specific markets and asset classes quite easily.

What Is the Difference Between ETFs, Stocks, and Mutual Funds?

Stocks, ETFs, and mutual funds are types of securities, but they differ in terms of risk, costs, tax efficiency, and how you buy and sell them.

Stocks vs. ETFs vs. Mutual Funds
 Stocks ETFs Mutual Funds
What it is single security basket of securities basket of securities
Risk concentrated diversified exposure diversified exposure 
Costs commission, bid-ask spread commission, bid-ask spread, expense ratio, premium/discount commission, expense ratio, sales load, early redemption
When you can trade market hours, prices continuously fluctuate market hours, prices continuously fluctuate trades filled once a day after market hours, priced once per day based on net asset value (NAV)
Tax efficiency most control over capital gains less control over capital gains least control over capital gains

How Do I Buy an ETF online?

ETFs trade on stock exchanges just like stocks. You can buy and sell ETFs through your brokerage account during regular market hours (when the stock exchanges are open). Many brokers today offer commission-free trading for ETFs; however, ETFs charge fees, known as expense ratios. The expense ratio is listed as an annual percentage. For example, a 1% expense ratio means you'll pay $10 for every $1,000 you invest in the ETF. The expense ratio can take a significant bite out of your profits, so it's important to compare expenses when researching ETFs (and mutual funds).

Do ETFs Pay Dividends?

If you own shares of an ETF, you may receive distributions in the form of dividends. There are two types of dividends issued to ETF investors:

  • Qualified dividends: These dividends are taxed at the capital gains rate, which depends on your modified adjusted gross income and taxable income rate (0%, 15%, or 20%). These dividends are paid on stocks the ETF held for at least 60 days during the 121-day period beginning 60 days before the ex-dividend date. To receive the dividend, you must own shares of the dividend-paying ETF for at least 60 days during the 121-day period that begins 60 days before the ex-dividend date. That means investors who actively trade ETFs generally don't receive any dividends.
  • Non-qualified dividends: These dividends are taxed at ordinary income tax rates because they are not designated as qualified. Dividends may be nonqualified if the ETF held the dividend-paying stock for fewer than the required 60 days.

Are ETFs Safe?

In general, ETFs are considered low-risk investments because they hold a basket of securities, which increases diversification. ETFs can be less risky than individual stocks because they aren't tied to the performance of one company like a single stock is. That means if one stock in the ETF tanks, it won't bring down the entire fund (provided it's a well-balanced fund).

Still, investors should know that ETFs aren't risk-free, and potential returns can be affected by things like market volatility and low liquidity. Also, not all ETFs are created equal. Index funds tend to be safe since they invest in the same securities as a given index and try to match the index's returns each year. Leveraged ETFs, on the other hand, also track indexes, but they use large amounts of debt to try to generate larger returns than the index themselves. Leverage is considered a double-edged sword because it maximizes potential gains—and potential losses.

What to Consider When Choosing a Broker for ETFs

When choosing an ETF broker, look for the same features you would for any broker: a strong industry reputation, up-to-date security standards, solid customer service, reasonable costs, robust trading tools, helpful educational content, and access to the markets you want to trade. It's also helpful to choose a broker that has a robust ETF screener and ETF-specific research to help you find your next investment.

Why Invest in ETFs?

ETFs offer an affordable way to build a diversified portfolio, thanks to their low expense ratios and greater tax efficiency when compared to mutual funds. ETFs are simple to trade since the transactions take place like stocks on regulated exchanges. ETFs can be traded on margin, have no short-selling restrictions, and provide intraday trading opportunities and plenty of liquidity.

A large percentage of ETFs are optionable as well, allowing traders to manage their portfolio risk using derivatives.

Methodology

Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of online brokers. Our reviews are the result of months of evaluating all aspects of an online broker’s platform, including the user experience, the quality of trade executions, the products available on its platforms, costs and fees, security, the mobile experience and customer service. We established a rating scale based on our criteria, collecting thousands of data points that we weighed into our star-scoring system.

Our best options brokers offer research capabilities specific to finding the best ETFs for a customer’s specific purpose. Top-notch screeners, analyst reports, fundamental and technical data, and the ability to compare ETFs are components of this award. We also looked for high-quality streaming data and the ability to find ETFs that are optionable. With all the commission cuts that came in the fall of 2019, ETFs trade commission-free at the large majority of online brokers. 

Read our full methodology.