Table of Contents Expand Table of Contents What Is a No-Fee ETF? Understanding a No-Fee ETF History of No-Fee ETFs Criticism of No-Fee ETFs Special Considerations No-Fee ETF: What It Means, History, Criticism By Andrew Ancheta Full Bio Andrew Ancheta is a finance editor who has reported extensively on cryptocurrency, NFTs, economics, and history. He previously worked as an editor for China Daily. Learn about our editorial policies Updated December 19, 2023 Reviewed by JeFreda R. Brown Reviewed by JeFreda R. Brown Full Bio Dr. JeFreda R. Brown is a financial consultant, Certified Financial Education Instructor, and researcher who has assisted thousands of clients over a more than two-decade career. She is the CEO of Xaris Financial Enterprises and a course facilitator for Cornell University. Learn about our Financial Review Board Fact checked by Vikki Velasquez Fact checked by Vikki Velasquez Full Bio Vikki Velasquez is a researcher and writer who has managed, coordinated, and directed various community and nonprofit organizations. She has conducted in-depth research on social and economic issues and has also revised and edited educational materials for the Greater Richmond area. Learn about our editorial policies Part of the Series Types of ETFs Explained Exchange-Traded Fund (ETF) Types and Benefits Explained What's an ETF 6 Common ETF Types for Your Portfolio An Inside Look at ETF Construction Custom Basket ETFs Single-Stock ETF Definition Passive ETF: What It Means, How It Works Types and Details Smart Beta ETF: Definition, Types, Example Diamonds ETF: Meaning, Popularity, Statistics No-Fee ETF: What It Means, History, Criticism CURRENT ARTICLE Value vs. Growth ETFs: How Do You Choose? Benefits and Risks of Thematic ETFs Factor ETFs: Meaning, Effectiveness, Examples Benefits of a Covered Call ETF Leveraged ETFs: The Potential for Bigger Gains—and Bigger Losses Ultra ETF: What It Means, Benefits, Limitations Equity Funds ETFs For Sector Rotation Strategies What Is a Sector ETF, How Do You Invest in One? Services Sector ETF: Meaning, Examples, Pros and Cons Airline Industry ETF Auto Industry ETF: What It is, How It Works, Example What Common ETFs Track the Banking Sector? Which Leveraged ETFs Track the Banking Sector? Biotechnology ETF: What It Is and How To Invest Communication Industry ETF Definition Food Industry ETF: What It is, How it Works, Pandemic Impact Gaming Industry ETF: What It is, How It Works, Examples Insurance Industry ETF: Meaning, Example, Pros and Cons Retail Industry ETF: What It is, How It Works Real Estate and Specialty ETFs A Look at One of the Largest Sustainable Investing ETFs ETFs for the Driverless Car Revolution Emerging Market ETF: Meaning, Pros and Cons The Vegan ETF - All About How the VEGN Fund Works REIT ETF: What it is, How it Works, Special Considerations Currency Funds Currency ETF: Meaning, Special Considerations, Examples How Currency-Hedged ETFs Work Inverse ETFs Inverse ETF: Definition, Comparison to Short Selling, and Example Inverse ETFs Can Lift a Falling Portfolio The Risks of Investing in Inverse ETFs See More Kathrin Ziegler / Getty Images Close What Is a No-Fee ETF? A no-fee ETF, or zero-fee ETF, is an exchange-traded fund (ETF) that can be bought and traded without paying a commission or fee to a broker. An increasing number of brokerages have been offering investors the chance to buy or sell these securities for free in order to remain competitive with other platforms. Key Takeaways A no-fee ETF, also known as a zero-fee ETF, is an exchange-traded fund (ETF) that can be bought and traded without paying a fee to a broker.Brokerages generally offer free trades to draw investors to their platforms and remain competitive — normally there's a charge each time an ETF is bought or sold.Sometimes ETFs are traded several times per day, so their no-fee counterparts can save investors a lot of money.However, free trading might result in fewer choices, as well as encouraging investors to trade more often and face steeper tax bills. Understanding a No-Fee ETF A no-fee ETF is generally used to attract potential investors to move their accounts to a new broker. Brokers offer to complete these trades for free in the hope of attracting new clients, who will also conduct more profitable trades with the same broker. No-fee ETFs can also make money by lending stock or offering lower interest on cash funds. Exchange-traded funds aim to replicate the performance of a broad equity market or specific sector and can be traded on exchanges throughout the day just like an ordinary stock. Normally, a charge is levied each time an ETF is bought or sold. There may also be an annual fee to pay for the fund's administrative costs, paid out from the fund's assets or from stock dividends. Frequent traders or day traders may rack up substantial expenses that can quickly eat into any profits. History of No-Fee ETFs ETFs were first marketed as a low-cost alternative to mutual funds, where professional money managers choose a basket of securities in which to invest. Since it is rare for a fund manager to consistently beat the market, ETFs offer the advantage of tracking the market without the additional cost of employing specialized stock pickers. The rate of commission charged for ETF trades can vary greatly between brokers, based upon what type of additional services they provide. Brokers that just conduct trades are likely to charge a lot less than brokers who provide additional advising or management services. Important A trading fee can range anywhere from as low as $5 per trade to upwards of a few hundred dollars per trade, depending on the type of service offered by brokers. During the 2010s, brokers and fund providers competed to attract new customers by cutting fees and commissions, ultimately resulting in an arms race towards zero costs. Charles Schwab, E*Trade, TD Ameritrade, and Fidelity each offered their own products with minimal or zero fees. While these products did not earn a direct profit for the brokerage, intense competition and consumer demand left them little choice. Scottrade, an online brokerage with three million clients, was heavily criticized for the lack of commission-free ETFs, resulting in its closure in 2016. Fast Fact A lack of no-fee ETF trades are considered to have contributed to the end of Scottrade. Criticism of No-Fee ETFs No-fee ETFs have been applauded for helping investors to save money, but they also come with several drawbacks. Since these funds cannot charge fees and commissions, they must pay their administrative costs through other means, such as lending assets, selling other products, or cutting back on other client benefits. One of the main scruples is a lack of choice. Index-tracking funds are comparatively inexpensive, but that limits investors to products that track broad market trends. Some no-fee ETF deals may be struck as part of a marketing arrangement with a particular asset manager, leaving investors with a limited range of funds in which to invest. There have also been complaints that no-fee ETFs encourage investors to trade too much. Some behavioral analysts believe that eliminating commissions encourages frequent trading. Numerous studies show that this isn’t a good thing, as the more investors trade, the worse they tend to perform. Frequent trading also leads to higher tax bills because sales on positions held less than a year are taxed as ordinary income. Special Considerations Investors shouldn’t fall into the trap of believing that a no-fee ETF completely frees them from paying any kind of trading commission. In some cases, hidden costs can still crop up in the trading spread, or bid/ask ratio—a two-way price quotation that indicates the best potential price at which a security can be sold and bought at a given point in time. High spreads are particularly common among less liquid, sporadically traded ETFs. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. U.S. Securities and Exchange Commission. "Mutual Funds and Exchange-Traded Funds (ETFs) – A Guide for Investors: Fees and Expenses." DiLellio, James and Goldfeder, Philip M. "Is There a Free Lunch in Commission Free ETFs?" Graziadio Business Review, vol. 19, no. 2, 2016. AdvisoryHQ. "Comparison: OptionsHouse vs Scottrade." U.S. Securities and Exchange Commission. "TD Ameritrade Holding Corporation, Form 10-Q, For the Quarterly Period Ended June 30, 2017," Page 10. ETF.com. "Get Ready For Zero Fee ETFs." American Association of Individual Investors. "Trading More Frequently Leads to Worse Returns." Internal Revenue Service. "Topic No. 409, Capital Gains and Losses." Wall Street Journal. "Why No-Cost ETFs Aren't No Cost." Ready to Take the Next Step? Advertiser Disclosure × The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Part of the Series Types of ETFs Explained Exchange-Traded Fund (ETF) Types and Benefits Explained What's an ETF 6 Common ETF Types for Your Portfolio An Inside Look at ETF Construction Custom Basket ETFs Single-Stock ETF Definition Passive ETF: What It Means, How It Works Types and Details Smart Beta ETF: Definition, Types, Example Diamonds ETF: Meaning, Popularity, Statistics No-Fee ETF: What It Means, History, Criticism CURRENT ARTICLE Value vs. Growth ETFs: How Do You Choose? Benefits and Risks of Thematic ETFs Factor ETFs: Meaning, Effectiveness, Examples Benefits of a Covered Call ETF Leveraged ETFs: The Potential for Bigger Gains—and Bigger Losses Ultra ETF: What It Means, Benefits, Limitations Equity Funds ETFs For Sector Rotation Strategies What Is a Sector ETF, How Do You Invest in One? Services Sector ETF: Meaning, Examples, Pros and Cons Airline Industry ETF Auto Industry ETF: What It is, How It Works, Example What Common ETFs Track the Banking Sector? Which Leveraged ETFs Track the Banking Sector? Biotechnology ETF: What It Is and How To Invest Communication Industry ETF Definition Food Industry ETF: What It is, How it Works, Pandemic Impact Gaming Industry ETF: What It is, How It Works, Examples Insurance Industry ETF: Meaning, Example, Pros and Cons Retail Industry ETF: What It is, How It Works Real Estate and Specialty ETFs A Look at One of the Largest Sustainable Investing ETFs ETFs for the Driverless Car Revolution Emerging Market ETF: Meaning, Pros and Cons The Vegan ETF - All About How the VEGN Fund Works REIT ETF: What it is, How it Works, Special Considerations Currency Funds Currency ETF: Meaning, Special Considerations, Examples How Currency-Hedged ETFs Work Inverse ETFs Inverse ETF: Definition, Comparison to Short Selling, and Example Inverse ETFs Can Lift a Falling Portfolio The Risks of Investing in Inverse ETFs Read more Investing ETFs Partner Links Ready to Take the Next Step? Advertiser Disclosure × The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.