Selling ETFs at maximum profit: procedure + tax
Your exchange-traded fund has increased significantly in value and is ready to be sold. Now you want to convert your investment into cash without incurring significant losses. We explain when you should sell or hold an ETF and how to execute the transaction in the best possible way.
In brief:
- ETFs can be sold easily through your broker.
- Whether you should sell or hold an ETF depends on your goals and financial circumstances.
- An ETF is not automatically a long-term investment. Short-term trading is also possible!
- Brokerage fees and taxes are payable on the sale. We will show you some ways to reduce these costs.
- Please note: There is a lot of misinformation circulating about alleged tax tricks.
Selling ETFs: what you need to know
Millions of Germans invest their money in ETFs. No wonder, given the enormous advantages these share packages offer! They allow you to invest broadly and therefore with less risk, have significantly lower costs than comparable products and can deliver huge profits.
In order to actually convert these gains into cash, you will have to sell your ETFs sooner or later. There are many reasons for selling:
- You have achieved your personal goals and saved up money for a new car or even a house, for example. Now you want to put your plans into action.
- You want to reallocate your capital and sell an ETF in order to purchase another one or invest in a completely different financial product.
- Profits from financial transactions are tax-free up to a certain amount per year. If your funds are showing a significant profit, it may be advisable to sell a portion each year to take advantage of the tax allowance.
- You urgently need money and have already used up your emergency fund. Although your exchange-traded funds are performing well and you would actually like to keep them, you now need to convert them back into cash.
- And the worst-case scenario: you urgently need cash, but your emergency fund isn’t enough. You have to sell your ETFs even though they are currently in the red.
No matter why you want to get rid of your funds, you can save yourself a lot of stress and, above all, money by following my tips! Buying ETFs is now completely free, but brokerage fees and taxes apply when selling. These cannot be avoided, but they can be drastically reduced with the right methods.
Should I sell my ETF or hold on to it?
One of the questions that every investor asks themselves when looking at their portfolio is: Should I sell my stock/ETF or hold on to it? Selling can be particularly tempting if you have already made a hefty profit.
There are good arguments on both sides. For example, is it worth keeping if:
- You expect further price increases (good market conditions, positive outlook for the industry, etc.).
- You do not currently require additional funds and can allow the find to continue without any issues.
- You don’t have any better/more lucrative investments available.
On the other hand, the following factors speak in favour of selling:
- The news is talking about a recession, the markets have been turbulent… it looks as if prices could soon collapse.
- One of your finds has generated significant profits that you would now like to collect.
- You need capital for a purchase in the foreseeable future or are planning another investment. It may therefore make sense to sell now – who knows how prices will develop in the near future?
- You want to sell a fund and buy another one because you expect a better ETF return. This type of ETF trade almost always makes sense!
The question of whether you should sell or hold an ETF is closely linked to the question of what alternatives you have for your capital. For example, Trade Republic interest rates, ING DiBa instant access savings accounts and Scalable Capital interest rates are currently attractive options. Here you can find out approximately the current base rate.
These offers are risk-free (provided you do not invest more than the deposit guarantee). This makes them an attractive alternative to some rather mediocre ETFs! In such cases, selling is likely to be better than holding.
Selling ETFs: Here’s how it works!
Modern brokers make trading ETFs incredibly easy. With most providers, you can even purchase them completely free of charge, regardless of whether you want to buy an ETF or invest in a savings plan.
- Savings plans are now free of charge at most brokers.
- One-time purchases can be made free of charge with providers such as Finanzen.net Zero or Scalable Capital (with flat rate).
- With brokers who offer a free ETF savings plan, you can also make one-off purchases free of charge using a trick: create a new savings plan with your desired amount. After the first execution, delete it again – you have now effectively made a purchase free of charge!
Good to know:
With brokers that offer free savings plans, you can also make one-off purchases free of charge. To do this, simply create a new savings plan and delete it after the first execution.
However, the topic of selling ETFs receives significantly less attention – presumably because brokers do not want you to withdraw your money. You will therefore search in vain for free offers for selling ETFs from most service providers. Currently, there appear to be only two options:
- At Finanzen.net Zero, all transactions – including sales – are free of charge if the order total is at least €500.
- At Scalable Capital, you can also sell free of charge if you have booked the trading flat rate and the order volume is €250 or more.
Practical implementation
Selling an ETF is very easy. I will show you the process using my favourite broker, Freedom24, but it works the same way with other providers.
1. Select an ETF
Once you have logged into your account, you will see an overview page/dashboard. All of your investments are listed here. Select the ETF you want to sell with a single click.
2. Create sale
After selecting an item, a new page will open containing all the details about the item. Here you will also find a ‘Sell’ button. Click on this button to specify how much you want to sell the item for. There are two options:
- Shares are units of the ETF. Their price corresponds to the market price of the fund. You can sell any number of ETF shares that you own.
- Many providers also allow you to trade in euros. You then sell percentage shares of your ETF until you reach your desired amount.
Depending on the provider, different order forms are available:
- The market order is the standard version and is always used if no other order type has been selected. As soon as you click on ‘Sell’, your broker sends the order to the exchange, where it is immediately executed at the best available price.
However, a few seconds can pass in between, and if the price changes during this time, you will receive the new price – even if it is worse for you! A market order therefore carries a certain amount of risk, especially if your fund is very volatile and subject to sharp fluctuations.
- A limit order is an alternative that offers more security. Here, you set a limit price and your broker sells your ETF for this price or a better price, but never for a worse price! This way, you can be sure that you will receive at least the specified amount.
- Stop-loss order: A stop order is a type of hedge because it is triggered as soon as a specified price is reached. Your broker then immediately places a market order and sells at the best available price. This order type is extremely useful if your fund is in profit and you want to secure those gains, but at the same time expect further price increases.
- Trailing stop losses, relative limit orders and other ‘professional orders’ are rarely found among typical neobrokers. They offer comprehensive strategic options, but are also more complicated to use.
If you would like to have access to these options, you will need to open an account with a broker that specialises in advanced traders. However, the costs are usually higher here.
3. Review and sell ETF
Once you have entered the desired amount or number of shares, you should check everything again: correct exchange-traded fund, correct price/quantity, correct order form. If everything is correct, you can submit the order and you will receive confirmation within a few seconds. Congratulations, you have successfully sold your ETF!
What you should pay attention to
Selling an ETF is a fairly simple process – but finding the right time to do so is much more difficult! There are several points to consider here:
- Trading hours. Your funds are sold on an exchange and can only be sold during trading hours. The exchanges available to you depend on your broker. Most online brokers now offer only a single exchange with very long trading hours and, in some cases, weekend trading. These include, for example, the online exchanges Gettex, Tradegate and Lang&Schwarz.
The problem: Prices on these trading venues are heavily dependent on Germany’s most important stock exchange, Xetra. Outside trading hours (weekdays from 9 a.m. to 5.30 p.m.), smaller online exchanges may apply higher price mark-ups (‘spreads’)! Spreads are also higher in the first two hours of a trading day and in the last hour of Xetra trading. This results in the following table for ideal selling times:
| Very high mark-ups | High mark-ups | Low mark-ups | High mark-ups | Very high mark-ups |
| Weekends, weekdays before 9 a.m. | Weekdays 9:00 a.m. to 11:00 a.m. | Weekdays 11:00 a.m. to 4:00 p.m. | Weekdays 4:00 p.m. to 5:30 p.m. | Weekdays after 5:30 p.m., weekends |
| Xetra closed | Xetra opening phase | Xetra open | Xetra closing phase | Xetra closed |
I therefore recommend selling your ETF on weekdays between 11:00 a.m. and 4:00 p.m. to achieve the lowest spreads. Especially if you want to actively trade ETFs (regular purchases and sales), choosing the right time window can make a significant difference!
- Exchange-traded funds have fluctuating prices. Naturally, you want to sell at the absolute highest price to maximise your profit. In practice, however, this almost never works! And if you wait too long for the ideal moment, you will quickly find yourself in a downward trend and ultimately earn less.
If you are not in a hurry, you can sell your ETF in shares. This is essentially a “reverse savings plan”. To do this, choose fixed dates to sell parts of your investment, for example, always on the first trading day of the month. This way, you will achieve a good average price (just like with a savings plan when buying).
Please note, however, that with this method, your broker’s fees can quickly add up! It is therefore only worthwhile for larger amounts and/or a very cheap or even free provider.
Save taxes when selling ETFs
You can find a lot of information on the internet about taxes and selling ETFs – much of it simply wrong or in the form of nonsensical, overly specific calculation examples. The bad news is that if you make more than £3,000 profit (UK) from an ETF sale, you will have to pay tax: in most cases 18% capital gains tax (UK)!
Of course, there is also good news: the tax burden can be massively reduced using various legal tricks!
- Use an international broker such as Freedom24 to defer the taxation date. A foreign broker does not make any deductions – you have to declare your income independently with your next tax return.
It will take several months – in extreme cases over two years – before you receive your tax assessment notice. During this period, the money is available to you and can generate further profits. You could invest it in P2P loans, for example:
- The Latvian provider Indemo pays you up to 25.3% interest per year. This means you can recoup more than half by the time your taxes are debited!
- With Ventus Energy, you receive up to 24% interest per year – enough to reduce your tax burden by 48% over the two years!
- Debitum Investments offers you 15% interest. With one investment you can reduce your taxes by almost a third.
If you invest the amount that will later go to the tax office in an S&P 500 ETF, your profits in two years would almost offset the entire tax amount. Of course, you would then have to pay tax on these profits yourself… but it’s still a massive financial advantage that only a foreign broker can offer you!
- Make full use of your tax allowance. As a single person, you can earn €1,000 per year from capital gains (ETF sales, share sales, dividends, etc.) without having to pay tax on it. For married couples, this amount increases to €2,000. If you are not in a hurry, you can sell ETF shares over several years and thus take advantage of the tax-free allowance.
- Favourable tax treatment: If your personal income tax rate is lower than the flat-rate withholding tax, you can apply to the tax office to use the lower rate. This ‘favourable tax treatment’ can be worthwhile for people on low incomes or pensioners, for example. If you want to thin out your ETF portfolio, you can also save a lot of money with a lower income tax rate!
- Consult a tax advisor: You should always consult a tax advisor for all tax-related questions. They can help you find the ideal solution for selling ETFs. A consultation is inexpensive and is all you need to choose the approach that will result in the lowest financial burden.
Conclusion: Selling ETFs involves costs and taxes – but savings are possible!
Banks, brokers and financial portals are always talking about cheap savings plans and the hottest investment tips… But no one tells you how to sell an ETF without incurring heavy losses! Brokerage fees, taxes and losses due to selling at the wrong time all threaten your profits.
You can only reduce the costs of your financial service provider by choosing the right provider. For example, some brokers offer free transactions for larger amounts. This can be very worthwhile for people who want to sell larger investments rather than just smaller ETF shares.
You can also save a lot on taxes by taking advantage of your annual allowance. It is also particularly useful to use a foreign broker such as Freedom24: these providers do not automatically deduct withholding tax. The tax payable remains with you until your next income tax assessment and can generate further profits!
This means that selling ETFs can be significantly more profitable than using a German broker, who will deduct your tax immediately. You should also consult a tax advisor for all tax-related questions. They can help you save even more money.
It is not always clear when you should sell or hold an ETF. Ultimately, you have to trust your gut feeling. If an exchange-traded fund in your portfolio has risen sharply in value, you can realise the profit by selling it. You do not have to hold such investments for several years, as some dubious advisors emphasise!
However, you should avoid “emergency sales” because you urgently need money. Your fund could be in the red at that point – one risk of ETFs is that prices fluctuate and can sometimes slip into negative territory. For such cases, it is essential to have an emergency fund, for example in a call account.
Not using a call money account yet? I can recommend the ING DiBa call money account! You can find more providers in my call money and fixed-term deposit calculator.
FAQ – Frequently asked questions
