Brokerage fees can add up as investors buy and sell positions. For instance, investors will have to consider commission fees when reinvesting earnings, dividends or capital gains, or when rebalancing an investment portfolio. However, a number of brokers have partnered with providers to offer commission-free trades on a number of ETFs, which should help long-term investors rebalance some ETF holdings at no cost. [Six Popular Commission-Free ETF Trading Platforms]
Along with direct costs, investors should also be aware of indirect costs to trading ETFs, like the bid-ask spread associated with each transaction. The bid-ask spread, or simply the spread, is the difference between the bidding price and asking price of a security, which is determined by basic market supply and demand. More buyers translates to more bids and more sellers translates to more asks. In any highly liquid market, there will be a lot of sellers and buyers, which would contribute to a tighter spread. [Bid-Ask Spread]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.