Day Trade ETFs: Criteria to Choose the Best for Short Term

etfs day trading

The financial market is not just stocks or forex. Indeed, there are also other assets you can trade. For example, you can exchange commodities, CFDs or ETFs. Today we want to focus our attention on the latter.

Exchange Traded Funds (ETFs) are popular investment assets in the United States and around the world. These assets hold over $10 trillion in assets and have millions of holders, ranging from individuals to huge institutions. In this article, we will look at what ETFs are and how to day trade them.

What is an ETF?

As the name suggests, an ETF is a fund that is listed in an exchange. It is a pooled fund of assets that makes it possible for people to invest in a basket of financial assets at once.

An ETF’s assets range from one asset to thousands of them. For example, the SPDR Gold Trust tracks the price of gold while the SPDR S&P 500 Fund tracks the S&P 500 index.

ETFs are like other individual stocks in that they are listed in exchanges and provided by most brokers like Robinhood and Schwab.

The only big difference between a stock and an ETF is that the latter has an expense ratio. An expense ratio is a small fee that ETF creators charge their holders. In most cases, the ratio tends to be less than 1%.

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How ETFs work

ETFs work in a relatively simple approach. It first starts with a financial services company that thinks of a fund to offer their customers. After coming up with an idea, the company can then go ahead with creating the fund. Examples of these companies are Blackrock, Vanguard, and State Street.

There are two main approaches whereby the company can decide to create a passive or an active fund.

A passive fund is one that tracks an existing index. Indexes are created by companies known as index providers. The biggest index providers are companies like S&P Global, MSCI, FTSE Russell, and Bloomberg. 

Most of the biggest ETFs in the world are passive in that they track existing indices, For example, Invesco QQQ tracks the Nasdaq 100 index while the SPDR S&P 500 tracks the S&P 500 index. 

Active ETFs, on the other hand, don’t track a specific index. Instead, these funds are managed by a team of experienced professionals who buy stocks based on a certain theme. These funds are known for having a higher expense ratio than passive ETFs.

Types of ETFs

The biggest category of ETFs is passive and active. Below that, there are different ways to categorize funds. 

First, ETFs can be categorized based on the assets they hold. For example, there are ETFs that track assets like stocks, currencies, bonds, commodities, and cryptocurrencies. 

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Second, there are ETFs based on an industry’s sectors. For example, there are funds that track technology companies while others follow companies in the energy, financial, and utilities sectors.

Third, there are inverse ETFs. An inverse ETF is built using financial derivatives that benefit when another fund goes down. For example, the ProShares UltraShort QQQ ETF is a leveraged fund that makes money when the QQQ fund goes down.

Fourth, there are covered call ETFs. A covered call is a strategy where a fund buys assets and then sells its call options.

They are known for having higher dividend returns compared to vanilla funds like QQQ and SPY. Some of the best covered call ETFs are JPMorgan Equity Premium Income (JEPI) and JPMorgan Nasdaq Equity Premium Income (JEPQ).

Further, there are funds known as smart beta ETFs. These are funds that take into account several metrics such as earnings growth, momentum, and profitability. Examples of these funds are equally weighted, factor-based, and volatility based. Some of these funds are the Vanguard Growth Fund and Vanguard Dividend Appreciation ETF.

Top criteria for selecting dividends

There are several things to consider when selecting a good ETF. Some of these things to consider are:

First, look at the historical performance of the fund. While past performance is not an indicator of future performance, we recommend holding funds that have done well in the past. 

Second, look at the expense ratio of a fund. In most periods, we recommend investing in funds that have a lower ratio.

While the expense ratio is often small, the costs can add up in a long period. For example, if a fund has a 0.03% expense ratio, you will pay $30 per year if you have a $100k investment. On the other hand, if a fund has a 0.80% ratio, you will pay $800 for the same period!

Third, consider the dividend yield of the fund. If your goal is to invest for retirement, consider a fund that has a higher dividend yield. 

Further, look at the fund’s trading volume. Ideally, you want a fund that has adequate volume on a daily basis.

Best ETFs to trade and invest

Invesco QQQ and Invesco QQQM

Invesco QQQ is a popular ETF with over $200 billion in assets. The fund tracks the Nasdaq 100 index, which is populated with technology stocks.

It is exactly similar with QQQM, with the only difference being that the latter has a lower expense ratio. This fund is a good one to trade and invest because of its popularity and its higher daily volume.


The SPDR S&P 500 ETF is a fund that tracks the S&P 500 index. One of the oldest funds, it has over $416 billion in assets under management.

Because it tracks the S&P 500 index, the biggest companies in the fund are Apple, Microsoft, Amazon, Nvidia, and Tesla. The fund is popular by both investors and day traders because of the importance of the S&P 500 index.

SPDR Dow Jones ETF (DIA)

This is another popular ETF that tracks the Dow Jones index. It has over $28 billion and a 1.96% dividend yield. The biggest companies in the fund are UnitedHealth, Microsoft, Goldman Sachs, and Home Depot.

Like the other two, DIA is a popular ETF because it tracks the Dow Jones, one of the most popular indices in the world.

JPMorgan Equity Premium Income (JEPI)

JEPI is a relatively new and fast-growing fund that was created by JP Morgan. In just a few years. The fund’s assets have grown to over $27 billion.

Unlike the other funds mentioned here, this one employs a covered call strategy. As a result, it has a higher dividend yield than the other vanilla funds. Its biggest constituents are Adobe, Microsoft, Amazon, and Mastercard.

Schwab U.S. Dividend Equity ETF (SCHD)

SCHD is another popular ETF whose assets ballooned to over $47 billion. The fund tracks some of the biggest dividend payers in the US. Some of its biggest constituent companies are Broadcom, Verizon, UPS, PepsiCo, and Cisco. 


There are hundreds of ETFs that you can select for your investment. Some of these funds are Vanguard High Yield Fund (VYM), iShares Select Dividend ETF, iShares Russell 2000, and iShares Core S&P 500 fund.

While these funds are good, we recommend that you invest in them instead of trading. To choose a good EFT to day trade, we recommend that you stick to the criteria we have suggested above.

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