What is day trading, and why are short-term traders flocking to it? A guide to US and Taiwan stock trading rules, fees, and practical strategies

Quick Introduction to Day Trading

What is Day Trading? In simple terms, it means completing both buy and sell transactions within the same trading day (or selling first and buying back later), ensuring all positions are closed before the market closes. This trading method accounts for nearly 40% of the Taiwan stock market. Due to the T+0 settlement system in the US stock market, it has become a paradise for day traders.

Day trading is divided into two main types: Buy Day Trading refers to buying stocks and selling them on the same day; Sell Day Trading involves short selling first and buying back before the market closes. Since Taiwan’s Financial Supervisory Commission opened up spot day trading in 2016, this short-term trading tool aimed at capturing price differences has become a popular way for many investors to avoid overnight risks.

Why Does Day Trading Attract Investors? Three Core Advantages

Taiwan stock trading settlement is T+2, meaning funds are only available two days after the transaction. The market is often influenced by international markets such as Hong Kong, Europe, and the US, where major news overnight can change the opening trend the next day. To avoid such overnight risks, many investors turn to day trading.

The main attractions of day trading are threefold:

1. Avoid International Market Volatility — Day trading completes settlement during trading hours, leaving no stock holdings after market close, so there’s no need to worry about sudden international market events affecting the next day’s prices.

2. Improve Capital Turnover Efficiency — Multiple trades within the same day can theoretically increase capital rotation and magnify profits through repeated transactions.

3. Leverage Effect — Day trading only involves paying the price difference, allowing trading volumes to exceed the actual capital, thus amplifying returns when profitable. Of course, losses are similarly magnified.

Day Trading Is Not Risk-Free: Four Major Pitfalls to Know

Behind the attractive advantages lie significant risks that should not be overlooked.

Cost Pressure — Although the government offers a half-reduction in trading taxes, frequent trading still incurs substantial commissions and taxes. For example, in Taiwan, if you make 5 trades of NT$100,000 each in a day, earning only 0.5% (NT$500) per trade, after deducting commissions and taxes, net profit might only be NT$100–200. If losses occur, initial profits can be wiped out by costs, leading to a long-term dilemma of “profit from price difference, loss from costs.”

High Psychological Pressure — Day trading relies on short-term price differences. Taiwan stocks often experience 1%-2% rapid fluctuations during trading hours due to foreign investor activity, industry news, or market sentiment. These fluctuations can determine the outcome within minutes, requiring investors to stay highly focused for extended periods. Rapid judgment of market direction and setting stop-loss and take-profit levels under high stress can lead to hesitation, missed opportunities, or impulsive mistakes—especially for less experienced traders, where risks outweigh potential gains.

Leverage as a Double-Edged Sword — Many use margin financing (long positions) or securities lending (short positions) to increase capital utilization. For example, in Taiwan, margin trading for day trading typically requires about 50% initial margin (2x leverage). If the market moves against you, losses are doubled. Buying NT$200,000 worth of stocks with NT$100,000 margin, a 5% decline in stock price results in a NT$10,000 loss (10% of your principal). In extreme cases (e.g., hitting limit up/down without being able to close), losses can escalate further, even leading to broker margin calls.

Psychological Addiction — The instant profit feedback from day trading can easily lead investors to become addicted to short-term thrills, gradually neglecting long-term investment performance. Many start with “trial operations” but evolve into “frequent trading,” sometimes based on gut feelings. Repeated small losses or a single large loss can consume time, energy, and gradually erode capital, drifting away from original investment goals.

What Type of Investors Are Suitable for Day Trading?

Day trading involves high risk and requires high professionalism; it’s not suitable for everyone. The following five types of investors should think carefully:

Those with ample time to monitor the market — Day trading requires quick decision-making. If you cannot watch the market full-time, you risk missing entry and exit points. Office workers or those unable to focus continuously are not suitable.

Those with risk management skills — You must set stop-loss orders and strictly adhere to them, avoiding violations for “recovery” purposes; also, control position sizes rationally and assess risks objectively.

Those with strong psychological resilience — Market fluctuations can be severe within minutes. If your emotions are easily affected (panic selling, greed chasing), risks increase significantly. You need quick decision-making skills and a stable mindset.

Those with investment experience and technical analysis skills — Day trading requires interpreting intraday charts, volume-price relationships, moving averages, candlestick patterns, support and resistance levels, etc. Without basic investment knowledge, jumping into day trading is just paying tuition with your capital.

Those with sufficient capital — Day trading is not a guaranteed profit tool but a speculative approach that involves risking small amounts for big gains. Insufficient capital combined with high leverage can lead to quick liquidation. Suitable for investors with ample funds who can bear losses.

What Are the Main Methods of Day Trading?

For investors in Taiwan and the US, day trading mainly includes five methods:

Spot Day Trading — Unique to Taiwan, investors can buy stocks with cash and close the position on the same day. Currently, over 1,600 Taiwanese stocks support spot day trading.

US Intraday Trading — Buying and selling within the same day without holding overnight. The key is the Pattern Day Trader (PDT) rule: with less than $25,000 in account equity, you can only make up to 3 day trades within 5 trading days; over $25,000, no limit.

Margin and Securities Lending Day Trading — Margin trading involves borrowing funds to buy stocks and selling them on the same day; securities lending involves short selling and buying back on the same day. Be aware of interest costs, borrowing fees, and potential short supply risks in hot stocks.

Derivatives Day Trading — Buying and selling financial derivatives within one trading day, including stock index futures, single stock futures, and options. Many short-term traders prefer Taiwan index futures due to high leverage and low costs.

Algorithmic Trading — Automated trading via computers based on algorithms, focusing on high-frequency small profits. Low cost but high technical requirements; difficult for retail investors to implement.

Comparison of Day Trading Rules: Taiwan vs US

Since spot day trading requires advanced skills and risk tolerance, each country sets participation standards. The main differences between Taiwan and US markets are:

Taiwan’s biggest feature is higher transaction taxes (even halved, still 0.075%), but trading hours are concentrated; US markets have longer hours, lower costs, and support odd lots, but require minimum funds.

Details of Day Trading Costs

Taiwan Cost Breakdown

For example, buying 100 lots of TSMC (price NT$600):

• Transaction amount = 600 × 100,000 = NT$60,000,000
• Commission (30%) of standard rate ≈ NT$60 million × 0.04275% ≈ NT$25,650
• Transaction tax (half-reduced) ≈ NT$60 million × 0.075% ≈ NT$45,000
• Main cost is transaction tax

US Cost Breakdown

For example, buying 1,000 shares of NVIDIA (price $1000):

• Transaction amount = $1,000 × 1,000 = $1,000,000
• Most brokers offer free commissions
• SEC/FINRA fees ≈ $0.000145 × 1,000 = about $0.145
• Total cost less than $1, but watch for spread and slippage

Clearly, US day trading costs are much lower, which is why more Taiwanese investors are choosing US stocks for day trading.

Practical Three Steps for Day Trading

Since day trading is complex and risky, it’s recommended to start with small capital, confirm skills, then scale up. Here are three practical steps:

Step 1: Select Suitable Day Trading Stocks

From thousands of stocks, pick those suitable for day trading—key is to find “hot stocks,” actively traded with sufficient volatility. Screening methods include:

News — Media reports are primary info sources. Stocks featured in news tend to attract attention, whether positive or negative, amplifying daily volatility and creating trading opportunities.

Research Reports — Institutional research reports can attract professional investors or institutions to increase or decrease holdings. Monitoring these large fund movements is valuable.

Quantitative Indicators — Observe daily trading volume rankings, turnover rates, sudden volume surges (over 50% above 5- or 10-day averages), combined with news and fundamentals to decide trading direction.

Step 2: Confirm Trading Direction

Day trading can go long or short, depending on previous lows and opening prices. Focus on 5-minute K-line charts (not daily) to judge market trend.

Long Strategy — Follow overall market momentum; if the market is strong but individual stocks outperform, consider holding. For example, if Nasdaq is strong and NIO surges beyond previous highs, you can set profit targets at prior highs.

Short Strategy — Also requires a bearish market environment. For example, if Baidu’s stock shows relative resilience while US markets weaken, you might buy back to lock in profits at low points.

Step 3: Strict Discipline

The most critical aspect of spot day trading is disciplined execution. Combine profit-taking, stop-loss, and capital management.

Timely Profit and Loss Cut — Perfect entry and exit are unrealistic; early setting of stop-loss and take-profit is best. Generally, set profit at around 5%, stop-loss at 2–3%. Never delay until close to market end; otherwise, you risk unexecuted orders, overnight risks, and settlement pressures. Near market close, selling pressure is high, increasing the chance of a “market kill,” which can lead to losses below cost.

Capital Management — Although positions are closed the same day, misjudgments can still cause losses. Always keep sufficient funds in your account before trading—trade with what you have.

Mindset Adjustment — The most important mindset in day trading is decisiveness and avoiding greed. Enter decisively when opportunities arise; exit promptly regardless of profit or loss. Avoid the mindset of “there’s still more to earn.” Only by doing so can you minimize losses and achieve stable profits.

Hot Day Trading Stocks in 2025

Taiwan Stock Recommendations

US Stock Recommendations

These companies have high daily trading volume and liquidity, suitable for short-term day trading.

Reflection on the Essence of Day Trading

Day trading is a trading tool, not a get-rich-quick scheme. Its advantages include increasing capital turnover and avoiding overnight risks; disadvantages are high costs, significant risks, and requiring high professionalism.

Many investors leverage excessively in pursuit of quick profits, thereby amplifying risks. When international markets open with gaps, day traders may miss opportunities or suffer reverse losses. Plus, Taiwan stocks involve commissions and taxes on sales, adding to costs.

These factors lead more investors to prefer US stock day trading. US markets offer high liquidity, low costs, and longer trading hours, creating a more friendly environment for short-term trading. Regardless of the market chosen, the core principles of day trading remain: risk control, discipline, and self-awareness.