Day Trading

What is Day Trading?

Day trading is the potentially lucrative trading method of buying and selling a security within the same trading day. It is based on the speculation of a financial instrument going up or down in price. Day trading can be achieved in any marketplace, but in the UK is most commonly practiced with the trading of Foreign Exchange (Forex), and Stocks. As well, Options and a number of Futures Contracts are commonly day traded in the markets.

Generally speaking, day traders are well educated and highly invested in the investment practice of day trading. They watch and analyze the markets, keep up with the latest market moving news, and utilize high amounts of leverage (gearing) along with their carefully chosen strategies to benefit from small price movements in equities and the financial marketplace.

Now that we know what day trading is, who are the day traders? Well, day trading was once an exclusive practice, reserved for people working in financial firms while considering themselves “professional speculators”, or even classing it a lucrative hobby.

However, nowadays just about anyone can become a day trader.

The rise of electronic trading and margin trading software has become available to individuals from around the world. So, if this trading method is available for everyone, how does a beginner get involved?

Top Day Trading Brokers

Official Forex and CFD partner of Arsenal FC, Markets.com offer an unlimited demo account and access to ETFs trading.
FTSE Spread
1.2 pts
GBPUSD Spread
2 pts
Oil Spread
4 pips
Stocks Spread
0.1%
FCA Regulated
No
MT4 Integration
Yes
The tightest spreads in the Industry. London based, FCA Regulated broker offering CFDs, Forex and Binaries
FTSE Spread
1 pt
GBPUSD Spread
0.9 pips
Oil Spread
0.06 pips
Stocks Spread
0.1%
FCA Regulated
Yes
MT4 Integration
Yes
FxPro are an industry leading broker. Originally CFD Forex specialists, the firm now boast CFD trading in 5 asset classes, though Forex remains the main strength.
FTSE Spread
0.7 Pts Var
GBPUSD Spread
0.9 pips
Oil Spread
0.05 pips
Stocks Spread
0.2% Var
FCA Regulated
Yes
MT4 Integration
Yes
The leading social network. eToro deliver cfd trading on forex, stocks, indices, commodities and etfs - and deliver the largest copy trading network available.
FTSE Spread
1 pt
GBPUSD Spread
4 pips
Oil Spread
5 pips
Stocks Spread
0.24%
FCA Regulated
Yes
MT4 Integration
Yes
CySec regulated broker. Specialise in Binary Options, with a growing CFD and Forex offering too.
FTSE Spread
1 pt
GBPUSD Spread
4 pips
Oil Spread
1 pip
Stocks Spread
0.2%
FCA Regulated
No
MT4 Integration
Yes
London based IG Group are a FTSE 100 Company, and market leaders in spread betting and cfd trading. Fully regulated by the FCA.
FTSE Spread
1 pt
GBPUSD Spread
0.8 pts
Oil Spread
3 pips
Stocks Spread
0.1%
FCA Regulated
Yes
MT4 Integration
Yes
Plus500 are currently offering a £20 No deposit bonus. The firm boast tight spreads, a full demo account and a huge range of assets. They are also the major sponsor of Atletico Madrid in La Liga.
FTSE Spread
1.2 pts
GBPUSD Spread
1.9 Pips
Oil Spread
4 pips
Stocks Spread
0.2%
FCA Regulated
Yes
MT4 Integration
Yes
A modern and award-winning trading broker with a full offering of CFDs, Forex, binary options and several cryptocurrencies.
FTSE Spread
GBPUSD Spread
Oil Spread
Stocks Spread
FCA Regulated
No
MT4 Integration
Yes

How to Start Day Trading

Pick a Market

First step for a day trader is to decide which markets you will be trading in, with the most popular being Stocks / Shares (Apple, Facebook, Google etc), Indices (FTSE, DAX, S&P), Forex, and Futures. Commodities such as gold, oil or things like grain prices can also be traded.

Forex markets are quite popular among beginners due to the low initial minimum deposit accounts of around £250. Binary options deposits can be even lower (from just £10), but are traded without margin.

Futures require more and stocks require the most money to be invested in for day trading. The best advice we can give is to choose just one asset class to begin with. All of them can be highly profitable, but it is best to focus on just one when starting out.

Equipment & Software

Once you know your market, as an individual day trader, you need the proper equipment and software to commence day trading. As a novice day trader, you will need a fast and reliable computer, it doesn’t have to be top of the line, but not the cheapest one either. In addition, day traders require a fast internet connection. You want to be sure your tables and charts are updating as quickly as possible.

Along with all this, you need a trading platform and a broker to commence trading. As a trader starting out, you will want something easy to use and not too complicated. We recommend traders try out the demo accounts associated with most day trading platforms to get a feel of which software platform performs best. As for brokers to go with, make sure they are reputable and regulated, along with low fees, tight spreads and maybe even bonuses.

Learning via virtual accounts is superior to books or courses. Hands on experience introduces trading psychology (though this is increased hugely with a real money account). The same learning curve is difficult to achieve just by flicking through “Day Trading For Dummies” or hastily written pdf.

Market Hours

Another important aspect to consider before you actually start trading is the time of day and how many hours a day you will be trading. As a day trader it’s important to trade the same hours each day to successfully implement and manage your strategy. The best trading hours are usually around the market opening and closing times.

Forex in particular presents interesting opportunities in terms of trading hours. Currencies are traded around the clock with no central market. This means multiple volume peaks and troughs as new regions wake up or shut down. London markets could be closed – but the GBP/USD pair might still be driven by traders in Indonesia, New Zealand or Hong Kong.

These time zones cycles apply equally to cryptocurrencies. Day trading on Bitcoin or Bitcoin cash will continue around the globe. Lesser known digital currency like Ethereum, Ripple or DASH are also traded 24/7. Cryptocurrency has added a whole new dimension for day traders.

Risk Management

Risk for this type of trading needs to be managed in two ways, trade risk and daily risk. Trade risk is how much you are willing to lose on each trade. An ideal standard is to risk 1% or less of your tradeable capital on each trade.

A trader will manage this by choosing an entry point and setting a stop loss. The stop loss will remove you from the trade if you reach a certain level of loss for that trade. Daily risk is like trade risk in the simple fact that they both limit the total loss amount; only daily risk limits the total losses for a single day. In doing this, bad days are restrained from being too bad and can be recovered by a typical winning day.

UK Tax Implications

There is no clear tax applicable for day trading. It will depend on the trading vehicle used, and also how you class the income. For example, if you trade forex at home, for a living, then the tax rules in the Uk suggest you should pay income tax. If however, you trade binary options from home – but class it as a hobby – then no tax will be applicable.

So day traders need to decide how they class any profits. For example, whether they earn a salary and do it “full time”, or not. Rules for forex, cfds and binaries will also differ. If in any doubt, professional guidance should be sought.

Day Trading Strategy

Day trading can be very complicated and it’s easy to get wrapped up with all the trending strategies and complicated chart analysis. One thing to remember is that you don’t need to know it all. All you need is one strategy to focus on, and implement it over and over again. Try out a strategy on a demo account first to see how it pans out.

Top 3 Day Trading Tips

A Winning Day Trading Strategy

One of the most used and well-known day trading strategies is the “Momentum Trading Strategy”. This strategy relies on market volatility. It can be used alongside other technical indicators and tools that you find on our trading platform as it relies on spotting trends.

In short it’s where a trader analyzes the markets and looks for the best performing assets over a certain period of time. It involves buying these and conversely selling the worse performing assets. Being well informed and knowledgeable of current market moving news is instrumental to the success of this strategy.

News such as a company’s earnings, a new deal or product launch, or some other kind of breaking news relating to the company can force the price to surge. There are many aspects involved with this strategy, and before implementing it in to your routine, learn all about it to become fully aware of its intricacies. Even practice on a demo account first to acquaint yourself without risking your capital.

Conclusion

So, there you have it, all you really need in day trading is consistency with trading hours and times, a set risk level that you unswervingly follow, and a strategy that works most of the time. It’s important to not over complicate these things and stick to a consistent plan with all aspects of day trading, which rules out the emotional factors that can inhibit your trading.