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Day traders attempt to profit by opening and closing trade positions several times during the day. However, they usually close all their open positions at the end of the day and don’t carry them over to the next.

While newer to the markets than stocks, exchange-traded funds (ETFs ) have joined other instruments used by day traders to make profits from short-term price fluctuations. ETFs offer the diversification of a mutual fund, the high liquidity and real-time stock trading, and low transaction costs. A few ETFs may also qualify for tax benefits, depending on the eligibility criteria and financial regulations.

Here are some ETFs suitable for day trading, with information current as of Oct. 21, 2022.

Key Takeaways

  • Day traders aim to profit by opening and closing trading positions several times during a trading day.
  • Most day traders close all their positions at the end of the day and do not carry any over to the following day.
  • Day traders trade individual stocks but can also trade exchange-traded funds (ETFs).
  • Ideal ETFs for day traders should have high liquidity, low transaction costs, and tight bid-ask spreads.
  • Some of the best ETFs for day traders include those that track the S&P 500 Index, the Dow Jones Broad Market Index, and Treasuries.

Selected ETF Criteria

Day trading involves buying and selling positions quickly, with attempts to make many small profits by trading large volumes in multiple trades. Therefore, the ETFs suitable for day trading should have high levels of liquidity, enabling easy execution of the trades at fair prices.

The transaction costs associated with ETF trading should be low, as frequent trading leads to high transaction costs that eat into the available profit potential. Additionally, one should also consider the bid-ask spread on the price quotes. The bid-ask spread is the difference between the buy and sell price demanded by the market participants trading a particular security. A tighter bid-ask spread indicates fair price discovery and higher liquidity.

Most ETFs that fit these three criteria are based on broader markets (using popular indexes like the Standard & Poor’s 500 Index or a total market index).

Day traders may also get high liquidity in specialized theme-based ETFs, like gold or oil-based ETFs. However, theme and commodities ETFs may have higher transaction costs and fees, making them unsuitable for day trading.

Leveraged ETFs may offer high exposure (two times or three times that of the underlying), but they usually lack high liquidity and may come at high expense ratios. As a result, these ETFs may not fit the day trading criteria and are not considered for inclusion in this list of ETFs for day trading.

The Top ETFs for Day Trading

The Vanguard S&P 500 ETF (VOO)

VOO tracks the popular S&P 500 Index, which represents the top 500 companies in the U.S. from diverse sectors. This ETF invests in the stocks listed in the S&P 500 Index. As a result, it has successfully mirrored the index’s performance with minimal tracking error. In addition, with an average daily traded volume of 4.6 million shares, VOO has one of the lowest expense ratios (0.03%), making it a day trading favorite.

The iShares Core S&P 500 ETF (IVV) and SPDR S&P 500 ETF Trust (SPY)

IVV and SPY work the same way as VOO. The only difference is that SPY has a slightly higher expense ratio of 0.0945%. On the other hand, IVV has the same expense ratio as VOO: 0.03%. In addition, SPY offers much higher levels of liquidity, with an average daily trading volume of 98.3 million shares.

The Vanguard Total Stock Market ETF (VTI)

VTI tracks and attempts to replicate the performance of the CRSP U.S. Total Market Index. This index includes large-capmid-capsmall-cap, and micro-cap stocks regularly traded on the NYSE and the NASDAQ. This ETF allows a trader to bet on a larger total market covering a broader spectrum of stocks across different market caps. VTI makes an excellent choice for day traders with only a 0.03% expense ratio and an average daily trading volume of 4.1 million shares.

Traders that trade more than four trades over five business days are considered pattern day traders by regulators. Thus, they must maintain a minimum of $25,000 in their margin account before trading.

The Schwab U.S. Broad Market ETF (SCHB)

Another broad-level market-based ETF, SCHB, tracks the Dow Jones U.S. Broad Stock Market Index. The index includes the top 2,500 largest publicly traded companies in the U.S. This ETF has an average daily trading volume of around 2.04 million shares and comes with a low expense ratio of 0.03%.

The iShares Treasury Floating Rate Bond ETF (TFLO)

Day traders interested in a bond ETF will find TFLO a good and cost-effective option. This fund attempts to replicate the performance of the Bloomberg U.S. Treasury Floating Rate Index. This ETF has been successful in replicating the performance of the benchmark index accurately with a very low tracking error. It has an expense ratio of 0.15%.

The iShares 20+ Year Treasury Bond ETF (TLT)

TLT is another bond-based ETF that provides exposure to long-term U.S. Treasury securities by tracking the performance of the ICE U.S. Treasury 20+ Year Index. It offers high liquidity, with 22.1 million shares exchanging hands on average. It has mirrored the performance of its benchmark index accurately. However, it has a comparatively higher expense ratio of 0.15%.

The Schwab U.S. TIPS ETF (SCHP)

Worried about inflation or looking to benefit from trading on inflation-protected securities? SCHP offers a perfect fit. It tracks the performance of the Bloomberg U.S. Treasury Inflation-Linked Securities (Series-L) Bond Index, a market-value weighted index of U.S. Treasury inflation-protected securities with at least one year remaining in maturity. With around 2.2 million shares trading on average and only a 0.04% expense ratio, SCHP offers a good fit for day traders.

Frequently Asked Questions

Do ETFs Count as Day Trades?

The Securities and Exchange Commission defines day trading as buying and selling the same security on the same day in a margin account. If you buy and sell an ETF in the same trading session from a margin account, it counts as a day trade.

What Are the Best ETFs for Swing Trading?

Swing trading is holding an investment to make short-term to medium-term gains, such as a day to a few weeks. ETFs that are good for day trading are also suitable for swing trading because you’ll find that many of the stocks listed in recommended day trading ETFs are also in most recommended swing trading ETFs.

What Are the Hottest ETFs Right Now?

There are hundreds of ETFs with high trading volume, but for the three months ending in October 2022, the top five ETFs by three-month average daily share volume are: ProShare UltraPro QQQ (TQQQ), ProShares UltraPro Short QQQ (SQQQ), Direxion Daily Semiconductor Bull 3x Shares (SOXL), SPDR S&P 500 ETF Trust (SPY), Proshares Ultra VIX Short-Term Futures ETF (UVXY). All but one of these (SPY) are leveraged, so trade these with caution.

The Bottom Line

Day trading involves high risk, as most day traders take margin-based leveraged positions. Margin-based leverage allows one to take a higher exposure with low trading capital.

Therefore, keeping the associated transaction costs low is critical to accommodate the occasional losses and to keep the realistic profits high. Selecting the right ETFs with the aforementioned criteria can enable a day trader to capture higher profits.

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