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What is a 'No-Fee ETF'

A no-fee ETF is an exchange-traded fund (ETF) without a broker trading fee. The majority of ETF’s require a trading fee be paid to a broker with each order to buy or sell.

BREAKING DOWN 'No-Fee ETF'

A no-fee ETF is generally used to persuade a potential investor to move their accounts to a new broker. The broker offers to complete these trades for free in the hopes of conducting additional future business for the investor at a profit to the broker. No-fee ETFs are a relatively new form of investment, as standard ETFs normally have a fee per trade and can be traded multiple times per day. This is because the price and value of these types of products fluctuates throughout the day. A broker who offers a no-fee ETF may find themselves conducting several trades at no profit to themselves.

Not all trades happen as frequently as ETF’s. Mutual funds, for example, are traded far less often because their value remains the same until it is calculated at the end of the trading day. They are also subject to a higher trading fee due to the limited number of trades that occur with these types of funds. Like stocks, the value of an ETF is updated continuously. Like a stock, it experiences a higher overall cost to trade.

What are Broker Trading Fees

Brokers earn a commission on each trade they make for an investor. The rate of commission charged can vary greatly between brokers, based upon what type of additional services they provide. Some brokers only conduct trades, and do not offer additional advising or management services, and their fees would likely fall on the lower end of the spectrum. Brokers who provide additional services or specialize in higher end trades would naturally charge more per trade and require higher initial account deposits.

A trading fee can range anywhere from as low as $5 per trade to upwards of a few hundred dollars per trade, depending on these factors. For investors who make multiple trades, as is common with exchange-traded funds, these fees can add up rapidly, especially when they have many accounts across many funds. Sometimes these funds are traded several times per day. An investor with a large portfolio may be paying thousands of dollars a day in trading fees. If these accounts are all producing a good return on investment, both the brokers and the investors can stand to make a large profit off these frequent trades.

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