Exchange Traded Funds (ETFs) have become one of the most popular investment funds for investors and even for traders. Globally, there are more than 7,600 ETFs  on the major stock exchanges.
Choosing what ETFs to trade from such a large pool might seem like trying to find a needle in a haystack. In this post, we’ll see what filters you can use when screening for the best ETFs for day trading.
Using them, we’ll also get to see the best ETFs for day trading in 2022. Let’s dig into it.
What Are ETFs?
An ETF is a type of fund that invests in a basket of underlying assets and is traded on an exchange, just like individual stocks. Like mutual funds, ETFs allow investors to diversify their portfolios by having a professional fund manager buy a basket of securities on their behalf.
Unlike mutual funds though, they are passively invested, have lower fees and are more liquid since they trade on exchanges.
An ETF can be structured to track the performance of indices based on a wide variety of assets, including: stocks, industries, commodities, currency pairs, and bonds. They can even be structured to track the inverse of other assets such as stocks to profit from their decline.
This wide range of investment choices has made ETFs increasingly popular. Other reasons traders and investors like ETFs are because of their strong liquidity, diversification by design, and relatively low management fees.
Aside from long-term investors, ETFs have also proved to be popular among day traders for much of the same reasons. In this article, we will be introducing you to some popular ETFs that day traders like to buy and sell regularly in order to create market opportunities from their short-term price fluctuations.
What Makes an ETF Suitable for Day Trading?
Some ETFs are better for short-term traders than others, since many of these traders may only hold the ETF for less than a day – hours even. Here are two key metrics day traders may consider looking out for.
High Average Trading Volume:
Average trading volume is the average number of shares traded in a day within a specific ETF. High trading volume is important because they contribute to better liquidity and tighter bid-ask spreads. This means traders will be able to enter and exit their positions quickly and at fair prices.
For all the ETFs we include in this article have a minimum average trading volume of 5 million.
Low Expense Ratios:
The expense ratio measures the percentage of a fund’s assets that are deducted annually to cater for the fund’s expenses. Any sales charges and transaction costs further reduce returns for investors, and even more so for day traders. This is why it is important that ETFs day traders choose have low expense ratios.
The ETFs shortlisted in this post have expense ratios that are fractions of a percent, making them suitable for day trading.
1. Vanguard S&P 500 ETF (VOO)
VOO tracks the performance of the S&P 500 index. The S&P 500 measures the value of the stocks of the 500 largest companies on the New York Stock Exchange and the Nasdaq Composite.
VOO mirrors the index’s performance by investing in all the stocks in the S&P 500 in similar proportions.
VOO has an average trading volume of 8.5 million shares and an expense ratio of 0.03%, the lowest ratio in the markets. This makes VOO an option for ETF day traders.
2. iShares Core S&P 500 ETF (IVV)
IVV is similar to VOO in that they both track the performance of the S&P 500. IVV also has an expense ratio of 0.03%.
The main difference is in the trading volume where IVV has a slightly larger average trading volume of 8.7 million shares.
3. Vanguard Total Stock Market Index Fund ETF (VTI)
VTI tracks the performance of the CRSP US Total Market Index. The index mirrors the performance of all investable securities listed on all major U.S exchanges.
To effectively track the index, VTI holds over 4,000 stocks in similar proportions to it.
It has an average trading volume of 5.2 million shares and a low expense ratio of 0.03%.
4. Schwab U.S. TIPS ETF (SCHP)
SCHP tracks the total return of the Bloomberg Barclays U.S. Treasury Inflation-Linked Bond Index (Series-L) before fees and expenses.
The index measures the performance of the U.S. Treasury Inflation-Protected Securities (TIPS) market. SCHP tracks the index by investing in U.S. TIPS with at least one year remaining in maturity.
The ETF has an average trading volume of 5.1 million shares. Combined with an expense ratio of 0.05%, SCHP is an option for day traders.
As the name suggests, SPY tracks the performance of the S&P 500 index. Launched in 1993, it was the very first ETF to be created.
It also has the highest trading volumes of all ETFs and the largest assets under management. It differs from VOO and IVV in its expense ratio and trading volumes.
SPY has a slightly higher expense ratio of 0.09% and a massive average trading volume of 115 million shares. The abundant liquidity available in the SPY may be considered as an option by day traders.
How to Start Day Trading CFDs on ETFs
If the idea of day trading ETFs sounds interesting to you, here are the steps broadly to get started:
- Open a trading account with a trusted broker
- Set up your demo account or fund your account and begin trading for real
- Develop a trading plan with entry and exit criteria and proper risk management rules
- Pick the ETFs you want to day trade
- Start trading
For those new to trading, we highly recommend you check out Vantage’s Academy, which has a library of articles to help you learn how to use powerful trading tools, well-researched articles on the financial markets, as well as up-to-date analysis to help you find your trading edge.
This is intended for education purposes only and constitutes general information only. The Company do not take into account the specific investment objectives, needs or financial situation of any person, makes no representation and assumes no liability to the accuracy, completeness, suitability and timeliness of the published content. The 5 “best” ETFs for day trading listed above are not ranked in any order and not intended as, and shall not be understood or construed as, a recommendation, or basis to make any specific investment decision. Reliance on such information is solely at your own risk and we cannot be held liable for any outcome of decisions resulting directly or indirectly from such reliance. Past performance is not an indication of future results.
- Number of ETFs worldwide 2021 | Statista.” 5 Apr. 2022, https://www.statista.com/statistics/278249/global-number-of-etfs/. Accessed 8 Apr. 2022.
- “ETF vs. Mutual Fund: What’s the Difference? – Investopedia.” https://www.investopedia.com/articles/investing/110314/key-differences-between-etfs-and-mutual-funds.asp. Accessed 8 Apr. 2022.
- “Inverse ETF Definition – Investopedia.” https://www.investopedia.com/terms/i/inverse-etf.asp. Accessed 8 Apr. 2022.