Forex

How to Buy and Sell ETFs?

ETFs are a purely passive investment tool that allows investors to gain exposure into any market quickly and at a low cost. If you want exposure to real estate, buy an ETF that tracks the entire sector. If you want exposure to small growth companies, buy an index fund ETF. The list of possibilities is endless because anyone can create an index for pretty much anything (i.e., there’s probably even an ETF for Zambian gold mining stocks).

Open an Account with a Brokerage Company

You might already have an account; in which case you can proceed to fund your account. If you don’t, then open one. Just as it is when opening any other type of account (e.g., savings, cheqing), specific criteria must be met to open an investment account (e.g., minimum deposit amount).

Fund the Account

Once you have created an account and verified it for security reasons, it is time to fund the account so that you can purchase ETFs. The simplest way is to electronically transfer money from another bank/financial institution into your new online brokerage account via electronic funds transfer (EFT). But, if you prefer to use a cheque, that will work too.

Navigate Online Brokerage Account and Purchase ETFs

By now, you have an account set up with a brokerage company, you’ve transferred money in, so there is cash sitting in your account, and you are ready to purchase ETFs. Start by typing the ticker symbol of the ETF into your search bar.

 

After selecting an ETF, simply click/tap on the green “buy” button and purchase shares by electronically transferring money from your bank to your brokerage company account (the cost of which will be deducted from your initial deposit amount). This process can take up to 48 hours, depending on how much cash you move between institutions. If you want to place a stop-loss on the trade, you can opt to electronically transfer money into the brokerage account before initiating the trade. This is called a “good till cancel” order and will remain in effect until you decide to reverse it or complete the transaction.

Sell ETFs

Now that you own an ETF, you might want to sell at some point. It’s easy; all you have to do is click/tap on the green “sell” button (this process can also take up to 48 hours).

 

A commission is charged for every individual transaction. The current commission structure is 1 cent per share for any trade under 1,000 shares and 0.5 cents per share for over 1,000 shares.

Withdraw Cash from the Account or Add to it

Usually, you will have two options at this point; you can either keep the cash in the brokerage account (i.e., not touching your principle), or you can “withdraw” it into your bank account (which will cost money depending on how much money is moved). If you want to reinvest some of that cash, log back into your online account and purchase more ETFs.

What Are the Benefits of Trading with ETFs?

  • ETFs are traded just like stocks.
  • There are no minimum deposit amounts required for brokerage accounts.
  • Spreads vary depending on market volatility and demand; more popular ETFs tend to have narrower spreads because more trading volume results in lower opportunity costs.
  • It’s effortless to make quick transactions; you can buy and sell ETFs instantaneously, or you can set a limit order on your trade for a maximum loss amount.
  • Many brokers also offer rebates on mutual funds and ETFs, which means it’s essentially free to invest in specific categories of securities, such as index-tracking products.

Are There Disadvantages to Trading with an ETF?

When trading ETFs, one thing to keep in mind is that they are traded like stocks, which means you can buy low and sell high (or sell high and buy low), but the prices fluctuate every second. If you own an ETF for 10 minutes, the value may change by $1, so you need to be prepared for this before investing.

 

There may also not be very many options available depending on what type of investments you’re interested in purchasing; some brokers offer more than others. It is essential to do some research before starting an account to see what products are being offered by your broker of choice.