What does day trading mean? A complete analysis of the T+0 trading method where stocks are sold first and settled immediately

Core Concepts of Day Trading

Day trading refers to a trading method where buying and selling are completed within the same day, commonly known as T+0 trading or Day Trading in the market. This trading mode breaks the limitations of the traditional T+2 settlement system, allowing traders to close their positions within the same trading day, avoiding overnight holding risks.

The essence of day trading is simple—profit from price fluctuations and the resulting price differences. A trader might buy a stock at 9:15 AM and sell it at 2:30 PM for a profit. This “buy first, sell later” or “sell first, buy later” operation is the core concept of day trading.

In practice, stocks, futures, ETFs, commodities, and even cryptocurrencies can be day traded. Among these, stocks are the most popular due to high liquidity and frequent volatility opportunities, especially in tech stocks and small-cap stocks, which offer abundant trading chances.

Current Situation of the Taiwan Day Trading Market

Since Taiwan’s stock market opened to actual stock day trading in 2014, market participation has continued to grow. According to statistics, about 40% of Taiwan stock trading volume comes from day trading, with user numbers increasing year by year. Investors are attracted to day trading mainly because it allows quick profits from intraday price movements and helps avoid the uncertainties of holding stocks overnight.

Two Main Methods of Day Trading

Cash Day Trading: Using Own Funds

Cash day trading is relatively straightforward, mainly utilizing personal funds to buy and sell within a single trading day. It is the most direct way to achieve T+0.

Operational Logic:

• Bullish: Buy actual stocks during the day → Sell actual stocks during the same day (long position)
• Bearish: Sell actual stocks during the day → Buy actual stocks during the same day (short position)

Account Opening Requirements:

1. Account opened for at least 3 months (not limited to a single broker)
2. More than 10 buy/sell transactions in the past year
3. Sign risk disclosure and intraday offset agreement

Cost:

• Stamp tax: 0.15%
• Commission: 0.1425%

Margin Trading: Using Margin Financing and Securities Lending

Margin trading involves borrowing money or stocks from a broker to trade. Borrowing money to buy is called “margin financing day trading,” and borrowing stocks to sell is called “margin short selling.” This method allows traders to conduct larger trades with less capital.

Operational Logic:

• Bullish: Margin financing buy during the day → Margin short sell during the day
• Bearish: Margin short sell during the day → Margin financing buy during the day

Account Opening Requirements:

1. Account opened for at least 3 months
2. More than 10 buy/sell transactions in the past year
3. Trading amount over NT$250,000 in the past year
4. Credit account required

Cost:

• Stamp tax: 0.3%
• Commission: 0.1425%
• Loan interest rate (average): 0.08%

Why Does Day Trading Attract Traders?

Day trading is popular mainly because of the following advantages:

Quick Exit: Traders can close their positions and stop losses within the same day, avoiding waiting until the next day, effectively controlling risk exposure time.

Leverage Effect: Since day trading involves a buy-sell settlement system, compared to traditional two-day settlement, it reduces the amount of pre-paid capital needed to some extent. Many traders are attracted by the concept of “no capital needed for day trading.”

Avoid Overnight Risks: If a mistake or sudden event occurs, traditional trading requires waiting until the next day to sell, risking potential losses. Day trading allows immediate closing of positions, avoiding overnight uncertainties.

Hidden Risks and Challenges of Day Trading

Although day trading has many attractions, it also involves significant risks, requiring traders to be cautious:

Leverage Risks Due to Insufficient Capital: Many are attracted by “no capital needed for day trading,” but this involves the use of financial leverage. Those lacking sufficient funds often have the weakest risk tolerance; if investments fail or defaults occur, they may face huge debts.

Overuse of Leverage: Traders may overextend leverage beyond their capacity. When the market moves against them, they may not stop loss in time; when correct, they might take profits too early due to leverage pressure, leading to large losses and minimal gains.

Cost Erosion of Profits: Short-term trading incurs higher transaction fees, taxes, and spread costs. Improper operations can wipe out thin profits entirely.

Time-Consuming: Day trading requires monitoring market movements, individual stock chips, real-time news, and more, demanding much more time and effort compared to swing trading.

Other Instruments Suitable for Same-Day Trading

Besides stocks, various financial products support T+0 trading with different cost structures:

Futures Trading

Futures are inherently T+0 instruments, allowing same-day buy and sell. Futures feature leverage and two-way trading mechanisms. Trading is based on “contracts,” typically requiring tens of thousands of NT dollars in margin to participate.

Costs:

• Transaction tax: 0.02% of NT$100,000
• Various commissions: about NT$30 (depending on the underlying)

Options Trading

Options derive from futures concepts, giving holders the right (not obligation) to buy or sell securities at a specified price within a certain period. Options are also naturally T+0, and traders can choose whether to exercise the contract. Compared to futures, options have a lower entry barrier, requiring only a small premium (a few thousand NT dollars).

Costs:

• Transaction tax: 0.1%
• Various commissions: about NT$10+

Contracts for Difference (CFD)

CFD is an over-the-counter financial derivative, where traders sign an agreement with a broker and only need to pay a margin to trade various assets, including forex, gold, stock indices, individual stocks, oil, and even cryptocurrencies. CFDs are inherently T+0, with no ownership of the underlying asset, and theoretically can hold positions indefinitely.

CFD account opening thresholds are very low (tens to hundreds of USD), with costs mainly based on spreads. Due to the broad range of underlying assets and flexible leverage, CFDs are especially suitable for short-term swing trading.

Costs:

• Main cost: spread on the traded instrument

Comparison of the Five Major Day Trading Tools

Practical Process of Day Trading

Regardless of the tool chosen, the basic logic of day trading is straightforward:

1. Analysis & Judgment: Based on technical, fundamental, or news analysis, determine the short-term trend of the underlying asset.
2. Confirm Direction: Decide whether to go long (buy) or short (sell).
3. Establish Position: Enter the market according to the plan.
4. Set Risk Control: Place stop-loss and take-profit orders simultaneously when establishing the position.
5. Close Same Day: Fully close the position before the trading day ends, avoiding overnight holdings.

For example, with CFDs, traders can leverage small capital (a few dollars to tens of dollars) for larger exposure, suitable for short-term swing trading. However, leverage also amplifies risks, so setting a stop-loss is crucial.

Best Timing for Day Trading

Day trading is usually completed within a short period, most suitable during:

• Market Open: Liquidity is high, and volatility is large
• Market Close: Traders settle positions before the market ends
• Major News Events: Policy releases, corporate announcements, or economic data releases

These periods tend to have higher volatility, providing abundant trading opportunities.

Frequently Asked Questions

Q: Can odd-lot stocks be day traded?
No. Odd-lot stocks do not support margin trading, and neither intraday nor after-hours trading allows day trading. The earliest sale is the next day.

Q: Which stocks can be day traded?
In Taiwan, stocks eligible for day trading include Taiwan 50 Index, Mid-Cap 100 Index component stocks, and OTC 50 Index component stocks (about 200 stocks). Additionally, options, futures, and CFDs can be traded. For US stocks, accounts with over US$25,000 in assets can trade unlimited day trades; below that, restrictions apply.

Q: Who is suitable for day trading?
Suitable traders have sufficient capital, quick judgment skills, can tolerate high risks, and have time to monitor markets throughout the day. Those lacking capital, risk tolerance, or time should be cautious.

Summary

Day trading represents the “same-day entry and exit” T+0 trading method, offering traders quick profit opportunities and risk management. Whether using cash, margin, futures, options, or CFDs, success depends on adequate capital, precise judgment, and strict risk control.

Day trading involves same-day settlement and lower pre-paid capital, but requires traders to monitor markets extensively and control leverage carefully. Misjudgments or poor risk management can lead to significant losses or defaults. Therefore, before engaging in day trading, traders must thoroughly assess their financial capacity, technical skills, and psychological readiness to bear the associated risks.