How to buy an ETF: Frequently asked questions (2024)

• Level: Beginner
• Reading duration: 6 minutes

Where do I buy Exchange Traded Funds?

Exchange Traded Funds (ETFs) are shares traded on the world's major stock markets. They are bought and sold just like any other shares. You can therefore buy them wherever you'd normally buy shares. For most people, that means via a cost-effective online broker or fund platform. You can also buy ETFs through a traditional stockbroker or a wealth management service.

How do I buy an ETF?

You will need a pre-funded account with an online broker or fund platform. To buy a specific ETF you will need to know its name or stock market ticker symbol, as well as how much you want to buy in terms of units or total pounds invested. The entire buying process takes only minutes, but the specifics do vary with different firms, so please consult your chosen broker or platform's literature.

How much does it cost to buy an ETF?

The cost of buying an ETF varies with different brokers and platforms. It will usually be the standard trading fee for shares. Consult your provider. In the UK, dealing fees of £6-£12 per trade are typical.

Do I pay a transaction tax when I buy an ETF?

No. On most UK share purchases, there is a transaction fee called Stamp Duty charged at 0.5%. However, stamp duty is not payable on overseas domiciled ETFs that trade in London. ETFs from the main providers are all domiciled in Ireland, Luxembourg and France. Stamp duty on UK-domiciled ETFs was abolished in April 2014.

How do I sell an ETF?

Via the dealing service where you bought and are holding the ETF. Consult your broker or platform's literature for specific details.

Can I buy an ETF direct from the ETF provider?

Unlike mutual funds, it is not possible to buy ETFs,just like shares, directly from the ETF provider (also known as the issuer). However, the fees in ETF trading are low, so the additional costs are kept within reasonable limits.

Is there a bid/offer spread with ETFs?

Yes, ETFs cost slightly more when you buy them than you get for selling them (think of exchanging holiday currency at the airport as an analogy). This difference is called the ”spread”, and it's typically around 0.1% to 0.5%. (Some illiquid ETFs may have higher spreads). This upfront cost does mean there are lower internal transaction costs, however, compared to traditional funds, since investors are paying their own way to buy and sell the ETF. In contrast, a traditional fund manager may need to sell holdings to raise money to repay an exiting investor.The greater the liquidity of an ETF, the lower the bid-ask spread.

Is there a liquid market in ETFs?

Yes, ETFs from the big issuers that track the main markets are highly liquid (easily traded). Some Emerging Markets or sector-based ETFs may be less liquid, however. That would be reflected in a greater spread. Check before buying.

Are there any additional charges I should know about?

Like other funds, ETFs charge an annual ongoing fee, which is deducted from the returns of the ETF (rather than being an explicit separate fee that you pay). It is called Total Expense Ratio (TER) and is deducted from the return of the ETF. These annual fees can be as low as 0.04 up to 0.95%. In addition, your online broker or fund platform will charge a fee, too. Shop around for the best deal for you.Bear in mind that the actual costs of an ETF may differ from the Total Expense Ratio.

When can I buy my ETFs?

As ETFs are shares traded on the stock market, they are bought and sold during normal market hours. In the UK, these hours run from 8 am to 4.30 pm.Some trading platforms even offer ETF trading from 8 am to 10 pm.

When should I buy my ETFs?

You should align your trade with the opening hours of the home market of the ETF's underlying holdings. It provides better liquidity and spread. For example, trade ETFs which hold U.S. stocks in the afternoon and ETFs which hold Japanese stocks in the morning.

Can I buy via limit orders or out-of-hours orders?

Yes, provided your online broker supports such orders for share dealing.

Can I buy whatever ETF I want?

Most ETFs are freely traded. Some ETFs are deemed to be more complex investments, and therefore only suitable for more sophisticated investors or those who can confirm they've read the supporting literature.

Am I locked into my investment when I buy an ETF?

No, ETFs are continually traded like other shares, so you can hold for as long as you like. There is no minimum holding period.

How do I know which ETF to buy?

Our ETF database provides you with comprehensive comparisons and many details on each individual ETF. These help you to choose the right one from the wide range of ETFs. The first step in your research is to choose the right index. Then you compare all available ETFs and make your personal ETF selection. The ETF screener and also the justETF investment guides offer you a good starting point.

Can I buy and hold my ETFs in an ISA?

Mainstream ETFs listed on the London market can be held in an ISA. ISA rules mean you can't transfer ETFs or other shares you own into an ISA, so you will need to buy them within an existing ISA. Holdings outside ISAs will need to be sold, and the money moved into an ISA (subject to the usual annual ISA subscription limit) where the ETFs can then be repurchased.

Can I buy and hold my ETFs in a SIPP?

Yes, in any SIPP that allows you to hold individual shares. Most people will buy their ETFs within their SIPP provider's platform. You can also transfer in existing holdings, albeit at a cost and there may be tax complications. Consult your provider or a financial advisor if you need to.