What is an ETF?

ETF is an abbreviation of Exchange Traded Fund and it is vastly made use of in Canada. As the name suggests, they are traded in stock exchanges just like shares are and its price rises and falls throughout the day, based on the market trends.

An ETF has multiple assets within itself and offers diversification. It is similar to a mutual fund, but the key difference is that mutual funds can be bought or sold only once a day and have a single price on one given day.

Types of ETFs

There are different types of ETFs:

1. Bond ETFs

2. Share ETFs

3. Passive ETFs

4. Active ETFs

5. Industry wise ETFs

6. Currency ETFs

7. Commodity based ETFs

What are the benefits of buying an ETF?

• You can hold an ETF that is in line with your goals and objectives by paying a smaller fee than having a portfolio of shares that you need to research and manage by yourself.

• An ETF holds multiple assets within itself. You can manage the risk of your portfolio through diversification that is offered by an ETF.

• You get indirect exposure to a variety of asset classes, industries, indices and markets.

• It is transparent. They disclose the holdings within the fund in their fact sheets.

• It offers flexibility in trading. You can buy and sell them any number of times and at any point of time in a day.

• They are generally cost-effective forms of assets.

How can an investment expert buy an ETF in Canada?

Buy ETF in Canada

We have illustrated the step-by-step process of buying an ETF in Canada.

• Open an account with a trading platform of your choice. There are a number of broking platforms in Canada namely Questrade, Interactive brokers, Wealthsimple and the ones backed by the big five banks.

• Pick what type of investment account you would like your ETFs to be invested in. You can choose from Tax-free savings account, registered retirement savings plan, registered education savings plan, personal account etc.,

• Link your trading account with your bank account and transfer the sum you wish to invest.

• If you are an investment wizard yourself, you can construct your own ETF portfolio.

• Search the name of the ETF or the ticker

• Click on the buy option

• Select the number of units you would like to purchase, based on the price of the ETF and the funds you have

• You can choose from market order or a limit order. Market order buys the ETF for you at the best price available, whereas a limit order executes the purchase only when the ETF price hits the limit you have set.

• Once the purchase is executed, you will be intimated.

How can a beginner buy an ETF in Canada?

The advent of automation in the trading and investment industry has been highly useful for starters who are looking to invest their monies into the markets.

There are a number of robo-advisor platforms in Canada such as Wealthsimple invest, Justwealth, Questrade, Nest wealth etc.

Buy ETF through A Robo Advisor

We have illustrated the step-by-step process of buying an ETF in Canada, through a robo advisor:

• Open an account with a robo advisor platform of your choice.

• Pick what type of investment account you would like your ETFs to be invested in. You can choose from Tax-free savings account, registered retirement savings plan, registered education savings plan, personal account etc.,

• Complete the questionnaire given to you. You will be asked questions to determine your goals, investment timeframe, risk appetite etc.,

• Based on your responses, the robot advisor will determine and invest your monies into the best fund that suits you.

Buying an ETF in Canada

The penetration of automation and digitisation in the Canadian financial markets along with free access to information has made it a cake walk for the investors to open a trading account, complete research and invest their funds in their desired Exchange Traded Fund (ETF).