Are ETFs Good for Day Trading? : NobleTrading Blog

Tuesday, June 2, 2009

Are ETFs Good for Day Trading?

One of the major advantages of Exchange Traded Funds (ETFs) is that they have great diversity and flexibility to suit almost all trading/investing styles. ETFs also can be day traded; because they are traded just like stocks. But are ETFs suitable for day trading? Here are some things which should be considered.

In general, ETFs are diversified trading instruments which track specific indexes/sectors. This makes them less risky; but this also makes them less responsive to trends. Thus it is better to day trade stocks than trading ETFs which track them.
Day trading ETFs is a great way to begin your day trading career and to get experienced to the daily volatility of market. Once you understand the trends and test your strategies you can begin to trade the stocks.
ETFs do not demand much stock screening ability. Thus (beginner) traders can day trade by tracking particular industries/sectors as a whole rather than screening for particular stocks. More over if some of stocks of a sector moves opposite to your position, you can still make some profit.
There are some ETFs known as smart ETFs and leveraged ETFs which try to beat the market. They can magnify (double or triple) any trend in tracking index. Thus these ETFs are ideal candidates for day trading.