One of the biggest stories in the ETF world over the past year has been the rise of free trading partnerships between a number of the country’s biggest online brokerage houses and ETF issuers. TD Ameritrade and Fidelity are among the firms that have rolled out programs offering commission-free ETF trading on select funds; Fidelity partnered with iShares while TD’s platform covers more than 100 ETFs from a handful of different issuers. This movement has obviously been a positive development for investors, facilitating the construction of portfolios that are cost efficient in terms of both expense ratio and commission fees.
There is now another player on the commission-free ETF trading scene; Interactive Brokers has announced that it will be offering free trading to its clients on all five of the brand new FactorShares ETFs. The FactorShares suite of leveraged ETFs offer exposure to ‘spread’ trades designed to capture the return differential between two asset classes. “FactorShares offers our clients a streamlined, cost-effective approach to spread trading,” said Thomas Peterffy, CEO of Interactive Brokers. “With one commission-free trade, our clients can now access the daily spread between major asset classes within a single ETF position.” [also read Free ETF Trading: Comparing All The Options]
Each FactorShares ETF combines two indexed positions–one long and one short–into a single exchange-traded fund. This method could present several advantages to traders who had used a similar strategy in the past with derivative instruments. The ETF wrapper may reduce costs and enhance liquidity, while also removing the issues associated with holding a futures account or buying securities on margin. Furthermore, and arguably most importantly, the ETFs remove what is known as ‘leg risk’ or the time delay between establishing a long and short position (as well as the eventual close out of the trade), a factor which was a major issue in spread trading before the advent of ETFs [see all the most heavily traded ETFs].
“Factor believes that Interactive Brokers will help to place the FactorShares spread ETFs in front of their savvy brokerage clients, alerting them to this new approach to alternative ETF investing,” said Karlheinz Muhr, Chairman of Factor Advisors. “For this reason, we are pleased that Interactive Brokers agreed to promote commission-free trading of FactorShares with no minimum holding period and no short-term trading fees.”
The current lineup of FactorShares ETFs includes five spread trades offering exposure to large cap equities, long-dated Treasuries, gold, oil, and the U.S. dollar:
- 2x S&P 500 Bull/T-Bond Bear (FSE)
- 2x T-Bond Bull/S&P 500 Bear (FSA)
- 2x S&P 500 Bull/USD Bear (FSU)
- 2x Oil Bull/S&P 500 Bear (FOL)
- 2x Gold Bull/S&P 500 Bear (FSG)
The recently launched ETFs have seen plenty of interest in their first few trading sessions; FOL and FSG have both seen volumes exceeding 200,000 shares in their first few days and could see even greater volumes thanks to this free trading program with Interactive Brokers [see FactorShares Debuts New Breed Of Leveraged ETFs].
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Disclosure: No positions at time of writing.