In accession to stocks, exchange-traded funds ( ETFs ) have emerged as another instrumental role of choice for day trade. They offer the diversification of a reciprocal store, the gamey liquidity and real-time trade of a neckcloth, and moo transaction costs. A few ETFs may besides qualify for tax benefits, depending upon the eligibility criteria and fiscal regulations .
Reading: The Top 7 ETFs for Day Trading
This article explores the top ETFs, which are desirable for day trading, with the data provided as of May 24, 2021 .
- The goal of day trading is to make profits by opening and closing trading positions several times during a trading day.
- Most day traders close all of their positions at the end of the day and do not carry any over to the following day.
- Day traders use stocks as an investment instrument but also use 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.
Criteria for choice
Day trading involves buying and selling positions cursorily, with attempts to make modest profits by trading big volumes from multiple trades. The ETFs desirable for day trade should have high levels of liquidity, enabling easy execution of the trades at bonny prices .
The transaction costs associated with ETF trading should be low, as patronize deal leads to high transaction costs that eat into the available profit likely. additionally, one should besides consider the bid-ask spread on the price quotes. The bid-ask gap is the difference between the buy and sell price demanded by the market participants trading a particular security system. A tighter bid-ask spread indicates bonny price discovery and higher liquid .
Most ETFs that fit these three criteria are based on broader markets ( like those based on popular indexes like the Standard & Poor ‘s 500 Index or overall broader markets ) .
Day traders may besides get senior high school fluidity in specialize theme-based ETFs, like gold or oil-based ETFs. however, such ETFs may be costly regarding transaction costs making them undesirable for day deal .
similarly, others like leverage ETFs may offer high exposure ( two times or three times the underlying ), but they normally lack high liquid and may come at high expense ratios. such ETFs may not fit the day trade criteria and are not considered for inclusion in the number of sidereal day trade .
The Top ETFs for Day Trading
1. 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 exchange traded fund invests in the stocks included in the S & P 500 Index in a exchangeable proportion to the exponent. It has successfully mirrored the operation of the index with a minimal chase error. With an average daily traded bulk of 4.6 million shares, VOO has one of the lowest expense proportion of merely 0.03 %, making it the favorite for day traders.
2. iShares Core S&P 500 ETF ( IVV ) and SPDR S&P 500 ETF Trust ( SPY ) : IVV and SPY work the same way as the above-mentioned VOO ETF. The only remainder is that SPY has a slenderly higher expense proportion of 0.09 %. IVV has the same expense ratio as VOO : 0.03 %. In addition, SPY offers a lot higher levels of fluidity with an average daily trade volume of 88.6 million shares .
3. 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-capitalization, mid-cap, small-capitalization, and micro-cap stocks that are 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 multiple commercialize ceiling sectors. With only a 0.03 % expense proportion and an average casual trade volume of 4.3 million shares, VTI makes an excellent choice for day traders .
4. Schwab U.S. Broad Market ETF ( SCHB ) : Another wide grade market-based ETF, this one 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 trade volume of around 500,000 shares and comes with a abject expense proportion of 0.03 % .
5. iShares Treasury Floating Rate Bond ETF ( TFLO ) : day traders matter to in a bind ETF will find TFLO a good and cost-efficient option. This fund attempts to replicate the performance of the Barclays U.S. Treasury Floating Rate Index. This ETF has been successful in replicating the performance of the benchmark index accurately with a identical low tracking error. It has an expense proportion of 0.15 % but offers a fee release of the lapp amount that makes the effective expense ratio nothing .
6. iShares 20+ Year Treasury Bond ETF ( TLT ) : TLT is another bond-based ETF, which provides exposure to long-run U.S. Treasury securities by tracking the performance of the ICE U.S. Treasury 20+ Year Index. It offers high liquid with 16 million ETF shares exchanging hands casual on average. It has mirrored the performance of the benchmark index accurately. however, it has a relatively higher expense proportion of 0.15 % .
7. Schwab U.S. TIPS ETF ( SCHP ) : Worried about inflation or looking to benefit from trading on inflation-protected securities ? SCHP offers a perfect equip. It tracks the performance of the Bloomberg Barclays U.S. Treasury Inflation-Linked Securities ( Series-L ) Bond Index, which is a market-value weighted index of U.S. Treasury inflation-protected securities with at least one year remaining in adulthood. With around 2.2 million shares trading daily on average and with merely a 0.05 % expense proportion, SCHP offers a dear fit for sidereal day traders .
The Bottom Line
Day trading involves high risk, as most sidereal day traders take allowance -based leverage positions. Margin-based leverage allows one to take a higher exposure with low trade capital .
consequently, it becomes critical to keep the associate transaction costs low to accommodate for the occasional losses and to keep the realistic profits high. Selecting the right ETFs with the above-mentioned criteria can enable a day trader to capture higher profits .