Best Day Trading ETFs

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Contributor, Benzinga
September 5, 2023

Invest in the best day trading ETFs today with Robinhood as your online brokerage.

Day traders usually look at volatile stocks when deciding which assets to trade, but exchange-traded funds (ETFs) can be great opportunities, too. Even though most ETFs are designed for long-term investments, day traders can still use these investment vehicles. But to day trade ETFs, you’ll need to understand how they work and how they’re used for short-term gains.

7 Best ETFs for Day Trading

To learn to day trade ETFs, you must develop a strategy and comfort level for volatility.  This list of best funds for ETF trades for day traders goes from least volatile to most volatile. High volatility is not necessarily bad; it's just that specific traders may not be comfortable with low trading volume or leveraged assets. 

1. SPDR S&P 500 ETF Trust (NYSE: SPY)

  • Market Cap: $413 billion
  • Avg. Daily Share Volume: 82 million
  • Expense Ratio: 0.09%
  • Beta: 1.00

The easiest ETF for anyone to trade is likely still SPY, which tracks all 505 stocks in the S&P 500 benchmark index. SPY has the highest trading volume, lowest volatility and spreads and now can be traded using daily options. Launched in 1993 by State Street Global Advisors (SSgA), SPY was the stock market’s first ETF and has a cap-weighted methodology, meaning the most prominent holdings are the stocks with the highest market capitalization. 

2. Invesco QQQ Trust (NASDAQ: QQQ)

  • Market Cap: $206 billion
  • Avg. Daily Share Volume: 54 million
  • Expense Ratio: 0.20%
  • Beta: 1.10

QQQ tracks the more tech-centric NASDAQ 100 index, which makes it more volatile than the sector-diversified SPY. You’ll see a higher concentration of companies like Apple, Amazon, NVIDIA and Tesla. Still, the NASDAQ 100 also features consumer staples stocks like PepsiCo and communications services like Broadcom Inc. QQQ has twice the expense rate as SPY but has similar spreads and plenty of volume for day trades. Daily options exist for those who want to crank up the leverage.

3. Vanguard Small Cap ETF (NYSE: VB)

  • Market Cap: $45.6 billion
  • Avg. Daily Share Volume: 560,000
  • Expense Ratio: 0.05%
  • Beta: 1.14

Vanguard is known for its low-cost index funds and long-term strategies, but it also has a wide range of highly liquid funds ideal for day or swing trading. One of the benefits of using Vanguard is you can get funds targeting specific asset classes, like small caps, that still charge well below industry standard expense rates. One downside of funds like VB is the limited stock option choices, so day traders usually need to open a margin account and use borrowed funds to leverage up their positions. 

4. SPDR Sector Select Tech Fund (NYSE: XLK)

  • Market Cap: $50.8 billion
  • Avg. Daily Share Volume: 6.7 million
  • Expense Ratio: 0.10%
  • Beta: 1.14

If you don’t want to trade based on market cap, you can choose sector funds like XLK, which tracks a basket of tech stocks. XLK has half the expense rate of QQQ but also fewer holdings (68 stocks vs. QQQ’s 101) and a higher concentration of large caps at the top. XLK is more volatile than QQQ but still has plenty of trading volume, low spreads and a more comprehensive range of options than Vanguard funds.

5. ProShares Ultra Bloomberg Crude Oil ETF (NYSE: UCO)

  • Market Cap: $754 million
  • Avg. Daily Share Volume: 2.9 million
  • Expense Ratio: 0.95%
  • Beta: 1.81

Be warned: once you’ve gotten this far, you’ll need to understand advanced day trade technical analysis to succeed with these volatile funds. Limit orders are a must when trading funds as volatile as UCO, which uses a combination of crude oil futures contracts, swaps and cash to replicate 2x the return of the daily price of sweet crude. Funds like UCO are complex instruments for day and swing trading, not long-term investments.

6. ProShares UltraPro Short QQQ ETF (NASDAQ: SQQQ)

  • Market Cap: $4.1 billion
  • Avg. Daily Share Volume: 129 million
  • Expense Ratio: 0.95%
  • Beta: 2.89

ProShares uses derivatives to create its 3x volatility indexes, and SQQQ is designed to capture 3x the inverse daily return of Invesco’s QQQ. That means SQQQ goes up when QQQ goes down, and vice versa. Funds designed to replicate 3x the return of another fund suffer from a severe tracking error called volatility drag, which often causes substantial deviations from the intended objective. Funds like SQQQ are strictly for short-term swing or day trades.

7. Direxion Daily Semiconductor Bull 3x Shares (NYSE: SOXL)

  • Market Cap: $6.7 billion
  • Avg. Daily Share Volume: 70 million
  • Expense Ratio: 0.90%
  • Beta: 4.02

If 3x leverage on a broad stock index isn’t enough, how about a 3x-levered industry-specific fund like SOXL? The semiconductor industry is one of the most volatile areas of the tech sector, making SOXL one of the highest beta funds available for stock trading. SOXL holds a combination of swaps, cash and individual stocks, so understand the fund’s goals before trading.

What Does it Mean to Day Trade ETFs?

Day traders buy and sell stocks during a single trading session without holding positions overnight. To trade ETFs in this fashion, day traders purchase shares (or derivatives like options) using technical trading signals instead of fundamental or economic data.

You’ll need to avoid pattern day trader violations to day trade successfully. A PDT violation occurs whenever a 4th-day trade is made in 5 days by a margin account with less than $25,000 in capital. There are a few ways to avoid this: keep $25,000 in your account at all times, use a cash account instead of a margin account or only make three day trades per week.

Where to Invest in ETFs

Here are a few of Benzinga’s favorite brokers for trading or investing in ETFs:

How to Choose Day Trading ETFs 

Here’s how to pick your ETFs for day trading:

Liquidity and Trading Volume 

Liquidity is the most crucial factor in day trading, and trading volume makes stocks and ETFs liquid. Be cautious trading funds with minimal volume, as opening and exiting positions may be difficult.

Volatility and Average True Range (ATR) 

Day trading is a risky endeavor because volatility is a prerequisite. Making money as a day trader is challenging if you’re only looking at assets making incremental moves. Volatility and technical tools like ATR should be understood and used to your advantage.

Sector or Index Focus 

If you want to invest in a specific asset class or sector, you’ll have plenty of ETFs to choose from. However, each fund will have different goals and objectives, even if they track a similar index. You likely don’t need to read the prospectus cover-to-cover but make sure you know how the fund operates and what assets it holds.

Expense Ratio 

ETFs charge an expense rate to pay for operating costs, calculated as an annual percentage of assets. Operating expenses include management salaries, investment research and other fees typically incurred by businesses. Expense ratios generally are low in broad index funds like the Vanguard 500 Index and get more expensive as investment strategies and asset allocation become more complex.

Bid-Ask Spread 

The bid is the price an investor pays to buy a stock, the ask is what the seller receives in return and the broker pockets the difference. Most spreads equate to a few pennies per trade, but illiquid securities have higher spreads because orders are more difficult for brokers to fill. High spreads can be a double whammy — a severe profit cut and a warning sign that you may be unable to exit a position quickly.

ETFs Are Less Volatile Than Individual Stocks, But Day Trading Carries Big Risk

Learning to day trade is not for investors with weak stomachs. It’s a painstaking process of stacking up small wins, avoiding significant losses and constantly adjusting expectations. In theory, ETFs limit volatility by supplying a basket of assets, but ETF day traders still need a high hit rate and the ability to comprehend complex investment strategies. Long-term investors can set it and forget about ETFs; day traders still have to work every day from 9:30 a.m. to 4:00 p.m. EST.

Frequently Asked Questions 

Q

Can you day trade ETFs?

A

Yes, ETFs can be used for day trades just like individual stocks and stock options.

Q

Can you day trade ETFs on Robinhood?

A

It depends. If you have a margin account, you’ll only be allowed three day trades in five days unless you keep your account balance over $25,000. You could be hit with pattern day trader (PDT) violations if you don’t have this minimum balance.

Q

Can you receive a dividend by day trading an ETF?

A

The dividend is due to whoever holds the shares of the stock or ETF by the end of the trading day before the ex-dividend date. So, to receive the dividend, you’ll need to hold the asset overnight.

Best Day Trading ETFs Methodology

All ETFs on this list meet at least three of the following criteria:

  • High liquidity
  • Low bid/ask spreads
  • Varied option strikes and expirations
  • Traded on a major exchange
  • Affordable expense rate

About Dan Schmidt

Dan Schmidt is a finance writer passionate about helping readers understand how assets and markets work. He has over six years of writing experience, focused on stocks. His work has been published by Vanguard, Capital One, PenFed Credit Union, MarketBeat, and Fora Financial. Dan lives in Bucks County, PA with his wife and enjoys summers at Citizens Bank Park cheering on the Phillies.