Trading News
Oct. 25, 202313 min read

The Best ETF for Day Trading 2024: A Complete Guide

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Written by Tim Bohen

An ETF for day trading is a fund that offers high liquidity, diverse sector exposure, and the ability to trade on margin. It’s a popular instrument among traders looking to capitalize on short-term market movements. In this guide, we’ll delve into the best ETFs for day trading in 2024, the benefits they offer, and how to build a solid trading strategy around them.

Read this article because it’s your go-to guide for mastering the art of day trading with ETFs in 2024, covering everything from benefits to strategy building.

I’ll answer the following questions:

  • What is an ETF and how does it work?
  • What are the benefits of using ETFs for day trading?
  • What types of ETFs are available for day trading?
  • How do you build a day trading strategy with ETFs?
  • What are the best ETFs for day trading in 2024?
  • What role does technical analysis play in day trading with ETFs?
  • How do you manage risk and maximize returns with ETF trades?
  • What costs are associated with ETF trades?

Let’s get to the content!

Table of Contents

What Is an ETF?

An Exchange-Traded Fund (ETF) is a basket of securities that tracks an underlying index. ETFs can contain various types of investments including stocks, commodities, or bonds. They offer diversification, much like a mutual fund, but trade on exchanges similar to individual stocks. From my years of trading and teaching, I’ve found that ETFs offer a unique blend of the features of both stocks and mutual funds, making them a versatile tool in a trader’s arsenal.

How Does an ETF Work?

An ETF works by holding assets such as stocks, bonds, or commodities and aims to replicate the returns of its benchmark index. They are traded on stock exchanges, meaning their price fluctuates throughout the trading day based on supply and demand.

Benefits of ETFs for Day Trading

ETFs offer several advantages that make them ideal for day trading. They provide the intraday liquidity you need for quick entry and exit, along with a range of other benefits that can enhance your trading strategy.

Intraday Liquidity

One of the most significant benefits of ETFs for day trading is intraday liquidity. This allows traders to enter and exit positions quickly, a feature I’ve often emphasized in my trading courses.

Diverse Sector Exposure

ETFs allow traders to gain exposure to entire sectors or industries with a single trade. This is particularly useful for day traders looking to capitalize on broad market movements.

Efficient Hedging Opportunities

ETFs offer efficient hedging opportunities against market risks. They can be shorted or traded on margin, providing traders with more strategic options.

Leverage Availability

Some ETFs offer leverage, amplifying both gains and losses. While leverage increases risk, it also provides the potential for higher returns, something that experienced traders can use to their advantage.

Reduced Volatility Risks

Compared to individual stocks, ETFs often have reduced volatility, making them less risky for day trading. However, it’s crucial to understand the ETF’s underlying assets to assess its risk accurately.

Speculation on Market Indices

ETFs allow for speculation on entire market indices like the S&P 500, giving traders more opportunities for profit.

Cost-Effective Trading

Most brokers offer commission-free trading on popular ETFs, making them a cost-effective option for day trading.

Types of ETFs Available for Day Trading

There are various types of ETFs that you can use for day trading, each offering its own set of opportunities and risks.

Equity ETFs and commodity ETFs are just the tip of the iceberg. If you’re looking to diversify your trading strategies, why not consider options? Options trading can offer unique opportunities and risks, and it’s crucial to understand the strategies involved. From covered calls to iron condors, there are various options strategies that can complement your ETF trading. Learn more about day trading options strategies here.

Equity ETFs

Equity ETFs are the most common type, tracking stock indices like the S&P 500. They offer high liquidity and are excellent for day trading.

Sector and Industry ETFs

These ETFs focus on specific sectors or industries, allowing traders to take positions based on the performance of distinct market segments.

Commodity ETFs

Commodity ETFs offer exposure to commodities like gold or oil. They’re excellent tools for diversification and can be profitable for day trading under the right market conditions.

Currency ETFs

Currency ETFs allow you to speculate on forex markets, providing a way to profit from fluctuations in currency values.

Bond ETFs

Bond ETFs offer exposure to the fixed income markets. While they are generally less volatile, they can offer steady returns.

International and Global ETFs

These ETFs provide exposure to markets outside the U.S., offering diversification and additional trading opportunities.

A Guide to Day Trading ETFs

Day trading ETFs requires a solid understanding of market volatility, asset classes, and technical analysis. Here’s how to go about it.

The platform you use can make or break your trading experience. E-Trade is one such platform that’s been a go-to for many day traders. It offers a range of tools and features that can help you execute your ETF trading strategy more efficiently. From real-time market data to advanced charting tools, E-Trade provides a comprehensive trading environment. If you’re looking for a reliable platform for day trading ETFs, here are the pros and cons of giving E-Trade a try.

Understand Market Volatility and Asset Classes

Understanding market volatility is crucial for day trading ETFs. Different asset classes have varying levels of volatility, which impacts your trading strategy.

Evaluate Price Action in the Markets

Price action is a key factor in day trading. It involves studying historical price movements to predict future price behavior.

The Role of Technical Analysis in Day Trading with ETFs

Technical analysis involves studying price charts and using statistical measures to predict future price movements. It’s a skill I’ve often focused on in my trading courses, and it’s crucial for successful day trading.

Building a Day Trading Strategy With ETFs

Creating a robust day trading strategy for ETFs involves several steps, from identifying the right candidates to understanding the costs involved.

Developing an effective ETF trading strategy is not just about identifying the right candidates and setting entry and exit points. It’s also about continuous learning and improvement. If you’re serious about mastering the art of day trading ETFs, consider enrolling in a day trading class. These classes can provide you with the knowledge and skills you need to trade more effectively. Check out these day trading classes to elevate your trading game.

Identify Appropriate Candidates for Day Trading

The first step in building a day trading strategy with ETFs is to identify the right candidates. Look for ETFs with high liquidity and low expense ratios.

Develop an Effective ETF Trading Strategy

An effective ETF trading strategy should include clear entry and exit points, risk management techniques, and a method for tracking your performance.

Manage Risk and Maximize Returns with ETF Trades

Risk management is crucial in day trading. Use tools like stop-loss orders to protect your downside and take-profit orders to secure your gains.

Understand Costs Associated With ETF Trades

Understanding the costs involved in ETF trading is crucial. This includes not just the expense ratios but also the bid-ask spreads.

Leverage Platforms and Tools for Successful Execution of Trades

Utilize trading platforms and tools for technical analysis to execute your trades successfully. Make sure your broker offers the features you need for your trading style.

Best ETF for Day Trading in 2024

Choosing the best ETF for day trading in 2024 depends on your trading goals, risk tolerance, and market outlook.

Vanguard S&P 500 ETF (VOO)

The Vanguard S&P 500 ETF is a popular choice among day traders due to its high liquidity and low expense ratio.

Vanguard Total Stock Market ETF (VTI)

This ETF offers broad exposure to the U.S. stock market and is another excellent option for day trading.

Schwab U.S. Broad Market ETF (SCHB)

The Schwab U.S. Broad Market ETF is another solid choice, offering exposure to a wide range of U.S. stocks.

iShares Treasury Floating Rate Bond ETF (TFLO)

For those looking to diversify, the iShares Treasury Floating Rate Bond ETF offers exposure to U.S. Treasury floating-rate bonds.

Direxion Daily Semiconductor Bull 3x Shares

This leveraged ETF offers three times the daily performance of the PHLX Semiconductor Sector Index, making it suitable for those looking for higher returns.

Tips for Day Trading ETFs

Day trading ETFs successfully requires a solid understanding of the market and a well-thought-out strategy.

Understand the Underlying Assets

Understanding the underlying assets of an ETF is crucial for successful trading. This knowledge allows you to make more informed decisions.

Monitor Liquidity Levels

Liquidity is key in day trading. Always check the trading volume of an ETF before entering a trade.

Be Aware of Expense Ratios

Expense ratios can eat into your profits. Always consider this cost when choosing an ETF for day trading.

Use Technical Analysis Tools

Technical analysis tools like moving averages and MACD can help you identify entry and exit points.

Stay Updated on Market News

Market news can significantly impact an ETF’s price. Stay updated to make informed trading decisions.

Set Clear Entry and Exit Points

Setting clear entry and exit points can help you maximize your profits and minimize losses.

Manage Risks with Stop-Loss Orders

Using stop-loss orders can help you manage risks effectively, a strategy I’ve always emphasized in my trading courses.

ETFs vs. ETNs

The main difference between ETFs and ETNs is that ETFs are funds that hold assets like stocks or bonds, whereas ETNs are unsecured debt securities. ETNs carry a higher risk but can offer unique investment opportunities not available with ETFs.

Key Takeaways

ETFs offer a range of benefits for day trading, including high liquidity and diverse sector exposure. However, it’s crucial to understand the risks involved and to develop a solid trading strategy.

There are a ton of ways to build day trading careers… But all of them start with the basics.

Before you even think about becoming profitable, you’ll need to build a solid foundation. That’s what I help my students do every day — scanning the market, outlining trading plans, and answering any questions that come up.

You can check out the NO-COST webinar here for a closer look at how profitable traders go about preparing for the trading day!

Do you day trade ETFs? Let me know in the comments!

FAQs

Are ETFs Good for Day Trading?

Yes, ETFs are generally good for day trading due to their high liquidity and the ability to trade on margin.

How Long Does an ETF Trade Take to Settle?

An ETF trade typically takes two business days to settle, similar to trading individual stocks.

Can I Buy and Sell an ETF on the Same Day Intraday?

Yes, you can buy and sell an ETF intraday, thanks to their high liquidity and the availability of trading on margin.

What Are the Basic Essentials for ETF Investors?

For both seasoned investors and beginner investors alike, it’s crucial to have a solid portfolio and enough money to invest. You also need to open an account with a reliable broker to get started with ETF trading.

How Do TD Ameritrade, Charles Schwab, and Fidelity Support ETF Trading?

TD Ameritrade, currently associated with the thinkorswim platform, is merging into Charles Schwab. This merger is expected to complete by late 2023, allowing both Schwab and TD Ameritrade users to access thinkorswim services online. Additionally, Fidelity is another robust platform suitable for both beginners and experienced investors interested in ETF trading.

Where Can I Find Reliable Information on ETFs?

For reliable information on ETFs, articles and examples can be a great source of knowledge. Bloomberg also provides valuable market insights and data relevant to ETF trading.

What Are Some Popular ETFs and Instruments for Day Trading?

The SPY and UVXY are common instruments for ETF day trading. Other types of derivatives and stock trading products can also be a part of a diversified trading strategy.

What Fees Are Associated with ETF Day Trading?

Companies often have a list of fees that you need to consider when day trading ETFs. These may include brokerage fees, account service fees, and other transactional expenses related to the products at hand.