E-Trade (Finally) Debuts Commission-Free ETF Trading Program - Leveraged ETFs
While ETFs have surged in popularity over the past few years, they are still relatively underweight in retirement portfolios as well as in holdings of investors who practice dollar-cost averaging techniques. In order to rectify this, many ETF issuers have sought to partner up with discount brokerages in order to offer commission-free trading programs in hopes of luring these types of investors into their products for the long-term.
Among the first to apply this strategy were Vanguard with their lineup, Fidelity with iShares funds, and then Charles Schwab with its own ETFs. Beyond these giants, TD Ameritrade offered up close to 100 funds commission-free putting the rest of the industry to shame in many respects. Soon after this, Interactive Brokers and Scotttrade each offered up their own programs as well, leaving E-Trade as the only major online brokerage without a commission-free ETF trading program (read ETFs Vs. Mutual Funds ).
For a while, many began to wonder if E-Trade would ever get on the ETF bandwagon and offer up a similar service to its clients. In fact, some were beginning to speculate that many low-cost investors seeking to keep expenses down would bolt the company for literally any other brokerage that offered up commission-free trading on these exchange-traded funds. Luckily for E-Trade, however, this no longer seems to be a worry as the firm recently announced a plan to finally offer up commission-free investing to its investors on nearly 100 ETFs.
The funds in question will be from three providers; Deutsche Bank, Global X, and WisdomTree, giving investors access to a variety of strategies and techniques that go across geographic and sector barriers. Among the highlights from the offering include Global X's China Sector Funds, Deutsche Bank's target retirement products, and WisdomTree's suite of dividend-focused ETFs. The move could be a big hit with E-Trade investors and is likely to push many who had considered bolting for other brokerages with commission-free programs to stick around in the E-Trade world instead (also read Alternative ETF Weighting Methodologies 101 ).
Exceptions to Commission-Free ETF Program
Investors should note that while buying long is covered under the system in any of the ETFs, selling short, buy to cover, and buy-write orders are not. Furthermore, options on ETFs and options-exercise-related transactions are also not eligible. Additionally, for margin customers, the ETFs purchased through the program are not margin eligible for 30 days from purchase date. Lastly, to discourage short-term trading, E-TRADE Securities will charge a short-term trading fee on sales of participating ETFs held less than 30 days (see ETFs vs. ETNs: What's The Difference? ).
Overall, the program is a pretty good start for the company and it likely catapults the firm into the top three in terms of the total quality of the offering. We still think TD Ameritrade offers the best, most diversified program though, although it appears like a number of players are starting to catch up to the firm's impressive contribution to the space. If anything, E-Trade fails to deliver in terms of U.S.-focused funds suggesting that for investors seeking to only use ETFs to play global or foreign markets, the platform could actually be a better choice. With that being said, Ameritrade does offer up a greater number of bond and commodity funds, which could make it a better pick for those seeking to build a diversified portfolio with commission-free ETFs (read Understanding Leveraged ETFs ).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.