How to Day Trade Index Funds?

Everyone knows that a trading market is unpredictable, especially during the daytime. During the day trading, because many traders are active, the market is highly volatile. In the standard hours, anything can happen in the trading market. There could be huge losses or high profits. The performance of every single security changes several times during day trading.

The index funds’ main motive is to generate growth in the long run if we look at the index funds. It works on the principle that the market is bound to outperform in the long term, positively impacting every single security in the market. Therefore, it creates a portfolio of diversified securities for funds’ investment.

Both day trading and index fund investment are contradictory to each other. Then what could be the result of day trading in the index funds? The answer is that it is unpredictable. It can be beneficial, and there is also risk involved.

Read this article to know what steps you can follow to trade index funds. The following steps do not involve any financial guidance on how you can succeed in the day trading of index funds. Instead, it covers the strategy that can be followed to start the trading.

How to day trade index funds?

To start day trade index funds strategy make the list of index funds that have high liquidity, low transaction costs, and tight bid-ask spreads such as Vanguard S&P 500 ETF, iShares Core S&P 500 ETF, iShares 20+ Year Treasury Bond ETF, etc. Day trade index fund is a risky strategy. It can be costly because of high spreads and commissions.

In my opinion, I would avoid day trade index fund, but if you decide to try strategy please please look at high liquidity, low transaction costs, and tight bid-ask spreads and implement eight rules for day trading index fund:

Fundamentals of Day Trading Index Funds

The following are eight fundamentals of day trading index funds. Traders can consider these points a core element of creating a successful strategy for day trading index funds.

Self Potential Assessment

Considering the risks involved in day trading, traders must be skilled enough to make better trading decisions. It requires a trader to have enough knowledge, time, and funds to invest. Day trading is very challenging, even for the experienced. Due to the constant risk of monetary loss, traders must have in-depth knowledge about the security they are trading in, in this case, index funds.

To become a successful day trader, you need to have a comprehensive experience that can be acquired with time. Traders have to stay committed to day trading, and this can be done through conducting research and being open to risks. Risks and research are the two prime factors needed to become a successful day trader. You can become an experienced day trader and generate lucrative results by day trading index funds by investing time.

Day trading also requires an excellent monetary background to support your trading decisions. For example, pattern traders need a minimum of $25,000 to cover the equity requirement. These funds are required if a trader wants to trade more than three times in a trading week. To gain more insight into day trading, it is imperative to practice the trade more often. So, to trade more, traders will need more funds.

At the start of your journey, trading more often will give you practical knowledge of what type of strategy may work best in the market. At the beginning of the learning process, all your funds are at stake. Therefore, it is essential to impose limits and only use the funds you are willing to lose.

Comprehend the Market

Index Funds and Day Trading are two very complex concepts of a trading market. Even experienced investors need to keep themselves updated with the regulations of the trading market and other securities. Knowledge is the key to successful trading, and this knowledge comes after researching the market. If traders are confident enough about their knowledge, they may get into day trading index funds.

Day trading refers to trading during the working hours of the market. It is complex as multiple transactions take place during the daytime, making the market highly volatile. There are so many aspects that a trader has to take care of—for example, the requirement to maintain minimum funds for pattern trading.

Along with the market, one must also gain necessary information about the security they are trading, in this case, index funds. Many new traders cannot differentiate between ETFs and Mutual Funds. Both are pooled funds investments. However, one is traded daily like a stock exchange security, while the other can only be changed after the market hours.

These aspects can only be known once you research the market and index funds. Be thorough with your research to not miss out on any critical factors.

Comprehend Index Funds

Once you are done comprehending the market and evaluating your capabilities, the next step is to understand the index funds. As mentioned above, it is vital to research the security you want to trade. This is because every security is traded differently and performs differently in a market.

Index funds are a safe investment but only in the long run. Day trading has the same impact on index funds on other securities. Index Funds are more focused on long-term results, while in day trading, traders focus on quick results by frequently buying and selling securities.

It is infrequent to find any article or news about index funds recommending strategies for day trading index funds. They are based on the traditional analysis of index funds, which is a long-term investment. Those analyses do not fulfill the purpose of your research and can be misleading or unproductive if you plan to trade index funds.

Instead of just relying on the indices, traders can broaden their knowledge by following the news regarding index funds. They can also observe social trends to get more insightful information. When you decide to trade index funds, it is the ETFs you can trade, not the mutual funds.

Strategize Your Trading Plan

Successful trading cannot be achieved by guesswork. Even if you have perfect knowledge of index funds and day trading, it is imperative to assess the suitable strategies for day trading and index funds trading. You can create a trading plan for day trading index funds based on the assessment.

Trading without a plan is riskier, and the chances of loss are the highest, especially during day trading. Since a trading plan is based on research work, the chances of success are higher. Even if you are not confident about your trading plan, you can try simulations on different methods that you have created to check how they may perform in the real market.

The popular strategies that work for day trading are fading, momentum and scalping. The success rates for scalping are the highest. Here, traders set a price target that is more than what they invested. It is widely used during day trading as traders can benefit from the frequent small changes in the price of a security. This can also prove profitable in the case of day trading index funds. However, a trader must not limit their chances to a single strategy and explore other systems.

Select Your Broker for Day Trade Index fund

Once you are done with your research about the security you want to trade and the market and formulate a trading plan, the next plan is to put that plan into action. To implement the plan, you will need a broker. With plenty of renowned brokers available, there are a few things that a trader must keep in mind before selecting one.

The security you want to trade determines which broker will best suit you. It isn’t beneficial if the protection you plan to trade is not enlisted in your broker’s exchange. It is not hard to find brokers that offer index funds trading. However, many may not permit day trading on index funds.

There are specific rules regarding liquidation and day trading that many brokers impose. Some of these rules may demand notice and not allow immediate selling of index funds. Even if it allowed day trading, how much commission would he charge? Therefore, it is essential to ensure that your broker will allow you to trade index funds at a low commission.

Test Your Trading Plan

Nothing can guarantee successful trading, not even the best trading plan until it is just on paper. The trading plan must be implemented in the real market. But are you ready to put your money at risk, depending upon a program that cannot guarantee success?

The best way to prevent losing your funds is to run a simulation test and check how your trading plan may perform in the real market. The simulation test gives you a chance to amend your trading plan if any weakness is found in its performance. It will help you eliminate all the flaws in your plan before actually implementing it in the real market.

You can discuss with your broker and request a test account where you can trade with virtual securities without using your real money. These test accounts help you run your trading plan in the real-time market while making fake investments. The market fluctuates as it would in the real market.

Many traders may be extremely sure about the ability of their trading plan and may not find it necessary to simulate their trading plan on a test account. However, a simulation test can increase the chances of success and profits.

Make Small Initial Investments

After your simulation tests result positive for your trading plan, you may feel like investing all your funds. However, this is not a good decision. This is because the risk of losing and chances of profits are at the same height in day trading. If, in the simulation test or your first-day trading, the results come out positive, know that the same market condition, where you made a profit, will repeat every day.

Using the same strategy in every market condition doesn’t work. Try making small investments and testing strategies and find a more lucrative one. If a system performs well in generating consistent profits, you can gradually increase your investment. Rushing into investment is not a wise choice. Take your time as there will be plenty of opportunities in the investment market, but the funds are limited.

Reevaluate The Strategies

The majority of traders use more than one strategy while day trading. This allows them to test which method works best. Once they settle on one or two systems and start using them while trading, it is essential to reevaluate these strategies weekly or monthly; the analysis will help you realize how effective your methods are.

The reevaluation will help you know if your strategy needs any adjustment or maybe you need to formulate a new one. Going on with the same system without analyzing its efficiency can prevent you from getting better results. Therefore, make it a habit to review your strategies regularly.


The foundation of index funds is based on gaining profits in the long run, while in day trading, it is making profits by buying and selling more frequently in a single day. The former is considered a safe investment means, while the latter is caused by higher risk. Both are fundamentally opposite. However, it is not impossible to trade index funds.

Following the above eight steps would help a trader understand the risks of day trading. Getting familiar with every aspect of day trading would let the traders know how they can take day trade index funds (ETFs).



Igor has been a trader since 2007. Currently, Igor works for several prop trading companies. He is an expert in financial niche, long-term trading, and weekly technical levels. The primary field of Igor's research is the application of machine learning in algorithmic trading. Education: Computer Engineering and Ph.D. in machine learning. Igor regularly publishes trading-related videos on the Fxigor Youtube channel. To contact Igor write on:

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