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The complete guide to day trading UK

Day trading is a popular investment and trading strategy for many individuals in the UK.

While it may sound like a simple strategy, day trading can actually be highly complex. That’s why most professional traders have often spent many years perfecting their day trading strategy so that they’re able to generate the kind of returns they want.

But what exactly is day trading? How does it work, how do you get started, and, most crucially, could it be a useful strategy for you as a retail investor?

Guide to Day Trading

8 of the best platforms for day trading

I’ve compiled a list of trading platforms you can use for day trading as a UK investor.

Please note: Past performance is not a guide to future performance, nor a reliable indicator of future results or performance.

Rank Platform What we like Visit Platform
1 Interactive Investor Interactive Investor – Best for Investing in Funds
– Lowest cost per trade: £7.99
– Platform fee: £9.99 per month
Visit Site
2 eToro eToro – Best for Low Cost Trading
– Lowest cost per trade: £0
– Platform fee: £0
Visit Site
3 Fineco Fineco – Best for Frequent Traders
– Lowest cost per trade: £2.95
– Platform fee: £0
– Get 100 commission free trades use Promocode FIN100-AF
Visit Site
4 IG Investments IG Investments – Best Overall
– Lowest cost per trade: £3
– Platform fee: £24 quarterly
Visit Site
5 Hargreaves Lansdown Hargreaves Lansdown – Best for Beginners
– Lowest cost per trade: £5
– Platform fee: £0
Visit Site
6 Freetrade Investment App Freetrade – Best for Low Cost Trading
– Lowest cost per trade: £0
– Platform fee: £0
– Get a free share worth up to £200
Visit Site
7 Stake Investment App Stake – Best for low cost trading
– Lowest cost per trade: £0
– Platform fee: £0
– Get a free share worth up to $150 USD
Visit Site
8 AJ Bell Youinvest Aj Bell Youinvest – Best for Ease of Use
– Lowest cost per trade: £4.95
– Platform fee: 0.25%
Visit Site

What is day trading?

As a concept, day trading is extremely simple to understand.

Day trading involves buying and selling financial instruments, such as stocks and shares, and then selling and closing positions on them in the same day for a profit.

So, as an example day trade, you might buy shares in a company at the start of the day for £5 each, and then sell them in the afternoon for £5.50.

While this may be a small return, day traders make many trades in a single day so that cumulatively, small but frequent profits add up.

Of course, while this is true when day traders pick winning trades, it also puts them at risk of losing money rapidly if the assets they’ve bought fall in value.

Typically, day traders will close all their positions before the markets close at the end of the day. Otherwise, they may be exposed to changes in values overnight.

How to become a day trader

There are four key stages to becoming a day trader that I will explain in full in this guide.

1. Choose a stockbroker

First, choose a stockbroker or trading platform where you’ll make your day trades and open an account that suits your needs.

You can find out more about some of the best trading platforms in this guide.

2. Do your analysis

Next, do your technical analysis. Work out how you’re going to find reliable information and what metrics you intend to use to choose your investments.

This guide will show you some of the ways that you can find the information you need.

3. Set your trading strategy

After this analysis, you’ll need to work out a strategy that you’ll use throughout your day trading.

You can find some examples of strategies that day traders often use in this guide.

4. Choose your investments

Finally, you can choose your investments, from stocks and shares to exchange-traded funds.

This guide will highlight some of the asset classes you could consider for day trading.

Finding a day trading platform

The first thing you need to do to become a day trader is to find a trading platform where you can make your trades.

In the UK, one of the best ways to do this is by opening one or multiple retail investor accounts with the most popular investment platforms.

Different platforms offer varying trading account and commission fees which will determine your trading costs, impacting your day trading profits as a result.

Here are some of the best platforms available in the UK for your day trading.

Interactive Investor

Interactive Investor

Interactive Investor is one of the favoured platforms for stock market trading in the UK.

With more than 400,000 customers and nearly £55 billion in assets under management, Interactive Investor offers a range of investment accounts.

Crucially for day traders, Interactive Investor charges a flat fee of £9.99 to open an account, including both an ISA and a regular trading account, and your first trade each month has no commission attached.

However, further trades after your first free trade usually cost £7.99 in commission. This fee may severely reduce your day trading profits, especially when making multiple trades each day.

eToro

eToro

Since starting out in 2007, eToro has grown considerably and now boasts a community of more than 20 million members.

As eToro bills itself as a “social trading community”, that means you can see what other traders are doing on the platform.

Therefore, by watching other successful day traders on the platform, you may be able to pick up some day trading tips, or even copy parts of their trading strategies.

eToro charges 0% commission on trades, meaning you keep 100% of the money you invest. This makes eToro a great choice for day trading as it means you keep more of your money, rather than it going to them.

However, this doesn’t mean there are no costs when using eToro. There are also currency conversion costs, withdrawal fees, and inactivity fees to be aware of.

Fineco Bank

Fineco

Fineco is an Italian bank offering banking and investment services worldwide.

Alongside access to 26 global markets, including the London Stock Exchange, Fineco offers a wide range of investments, including shares, funds, bonds, and foreign exchange.

Fees on the Fineco platform are highly competitive, giving you 50 commission-free trades in your first two months on the platform and then starting from just £2.95 per trade moving forwards.

Fineco also offers a Stocks and Shares ISA. And, if you open your ISA before 31 December 2021, you’ll pay 0% in platform fees until the end of the 2021/22 tax year.

After this, fees are still just 0.25% with no fees for fund dealing or transferring out.

These accounts make Fineco great for day traders, as you can save a fair amount of money on trading fees compared to other platforms.

IG Investments

IG Investments

IG is another highly popular platform in the UK and is one of the biggest investment providers globally.

In fact, in my previous guide to the best trading platforms UK, IG came out on top as my pick for the best overall trading platform, due to their range of services.

IG offers a range of investment options, from stocks and shares to bonds, commodities, and more. You can also invest in a tax-efficient way via their Stocks and Shares ISA.

Additionally, regularly trading UK stocks can see your commission brought down to as little as £3. As day trading means consistent trading by definition, you could easily make the most of this lower commission rate when using IG.

Otherwise, share trading fees typically fall between £3 and £8. This is somewhat of a mid-range price compared to other available platforms.

Hargreaves Lansdown

Hargreaves Lansdown

With more than £120 billion in assets under management for 1.5 million clients, Hargreaves Lansdown is one of the most well-known trading platforms in the UK.

Hargreaves Lansdown offers comprehensive investment services, from a regular investment account to Stocks and Shares ISAs and self-invested personal pensions (SIPPs).

However, Hargreaves Lansdown may not be ideal for day trading, owing to the fact that commission rates on the platform can be quite steep.

Individual trades can cost as much as £11.95 per month if you don’t trade regularly, and ISA fees depend on how much you have in your account. As day trading relies on small margins, you’re unlikely to be investing £2 million in an ISA and making the most of the 0% annual management charges.

That said, if you make 20 deals or more in a month, you’ll pay just £5.95 for each deal. As a result, the platform can be cost-effective for day trading if you invest regularly.

Freetrade

Freetrade

Freetrade is one of the newest names in the investment platform market, having only started operating in 2018. Even so, in that short amount of time, they’ve managed to establish themselves as a serious choice for many investors, in particular for day traders.

There are no account or commission fees for trading stocks, shares, or exchange-traded funds on Freetrade, nor are there inactivity fees, withdrawal fees, or deposit fees.

Meanwhile, Freetrade’s ISA costs just £3 per month, and they also offer a Freetrade Plus account for £9.99, including the cost of an ISA and 3% interest on cash that you hold in between investments.

These low dealing fees make Freetrade one of the best investments apps for day trading.

And, if you open a new account with Freetrade using my referral link, you’ll receive one free share in a randomly chosen company, with a value between £3 and £200.

Stake

Stake

Australian digital brokerage firm Stake allows UK investors access to the platform exclusively via their app.

Stake has no monthly account fee for the Standard Account, nor are there inactivity fees. There are small withdrawal fees of $2, but these can be offset by a free stock worth up to $150 when you sign up.

Stake offers commission-free trades for US stocks, shares, and ETFs. As a result, it may be a good option if you want to day trade specifically on US investments.

However, as all investments made on the platform are done in US dollars, Stake charges a 0.5% foreign exchange fee when you deposit into your trading account. This could hamper your day trading returns.

AJ Bell Youinvest

AJ Bell Youinvest

AJ Bell, also known as AJ Bell Youinvest, has become one of the most well-known stockbrokers in the UK since its inception in 1995.

It is a straightforward platform as it was largely designed for novice investors. As a result, to make the platform accessible, they eliminated many fees, including inactivity fees and withdrawal fees.

Meanwhile, they charge just £1.50 for their regular investment services, a highly competitive figure that can keep costs down for you as a day trader.

ISA fees are also competitive, charging just 0.25% on the first £250,000, with this percentage dropping the more you invest.

Technical analysis

The next stage in becoming a day trader is to do technical analysis and find reliable information for you to inform your day trade decisions.

This technical analysis is a crucial part of your day trading strategy as otherwise, you’d be making your decisions randomly.

There are a variety of considerations to make as part of this analysis.

Boost your stock market knowledge

Having knowledge of how financial markets work and where you can make money can be highly useful when day trading.

You need to understand the factors that can impact the market and a day trade, such as how a volatile market can be potentially lucrative but equally dangerous, or how trading volume can be indicative of a popular trade.

Stockbrokers and trading platforms often have dedicated “learn” sections that can be highly useful for novices to start learning about trading in detail. Even if you know a lot already, you can always learn more from the information on these pages.

Apps such as Finimize can also be useful tools for reading market insights and finding out information.

Day trading software

If you want to take your analysis to the next level, you could consider buying day trading software containing a range of technical indicators to further inform your investing.

There are a variety of trading software providers available, including brands such as eSignal, MarketGear, and MetaStock among many others.

Of course, purchasing day trading software will cost you money, putting a dent in your day trading margins.

Even so, the value you could derive from a more accurate analysis may make this worthwhile.

Day trading and risk

One key part of your analysis is to consider risk.

All investing involves risk and, as you might imagine, day trading means potentially taking on even more risk than other forms of investing might, as your positions are shorter. As a result, this puts you at risk of losing money rapidly.

Learn to manage the risk in your day trading. Be willing to sell when an investment has reached a certain amount of profit, even if you think it has room to grow further.

At the other end of the spectrum, don’t become attached to investments that fail. Part of being a successful day trader is to cut investments that don’t work out before the situation becomes even worse.

You may also want to consider diversifying investments in different asset classes, industries, sectors, and geographical locations.

That way, if you lose value on one trade because of a dip across an entire region or industry, you’re less likely to lose value on all your trades.

Popular day trading strategies

At this stage, it’s useful to start thinking about what kind of day trading strategy you’re going to go for.

There are a variety of day trading strategies that you might want to consider. Here are just five that could work for you.

1. Trend trading

Trend trading involves watching the direction (i.e., the trend) of an asset’s price over longer periods, and then buying or selling accordingly based on what’s happened in the past.

For example, if an asset looks like it’s rising in value, a trader might buy and then wait for the rise, before selling when it has. This is called a “long position”.

Meanwhile, if an asset’s trend is downwards, a trader might sell to avoid losing value. This is called a “short position”. They may then repurchase the asset later at a lower price, meaning they make a small margin.

Trend trading requires you to be on the ball with your investments, as the changes in value can happen quickly.

2. Swing trading

Swing trading is similar to trend trading, except that swing traders take a far shorter outlook on the movement of an asset.

Swing trading still involves taking a long or short position based on expected outcomes, the key difference being that they try to do this over shorter periods, targeting smaller market movements to do so.

3. Scalping

Scalping is a short-term day trading strategy, with the theory being that aiming for many small wins creates large returns over time.

For example, a trader might buy and sell an investment five or six times in an hour, capitalising on small rises and falls in value in that time.

Naturally, this strategy exposes you to even greater risk, as unexpected changes in value would destroy any of the smaller wins that you had made throughout the time period.

It’s important to remember to close any positions before the market closes. Otherwise, overnight funding changes could entirely erode any profits you make while scalping.

4. Money flows

Money flows is a strategy that involves looking at both an asset’s price and, more importantly, trading volume (i.e., how many times it has been bought or sold) to determine whether it has been overbought or oversold.

Traders use analysis to compare the number of trades from one day to the next, using the data to decide whether an asset has been overbought or oversold.

If the asset appears to have been overbought, the trader will sell the asset before the inevitable drop-off.

Meanwhile, if the asset appears to have been undersold, this tells the trader that they should buy it before other investors do, and then sell when the price has risen again.

5. Mean reversion

You may have heard the phrase “time in the market, not timing the market” before. This idea comes from the fact that, over long periods, investments tend to move in an upward trajectory.

While this appears as peaks and troughs over time, you can draw a line straight through this to determine the “mean” growth.

A mean reversion strategy involves trying to capitalise on this theory by buying when the investment falls below the expected mean, and selling when it appears to have peaked.

The trouble with this strategy is that there’s no guarantee that a particular investment will perform as expected.

Sticking to the strategy

Crucially, many day traders will typically stick to their strategy, even if there are peaks and troughs in the performance.

Sticking to your strategy can be important, as trying to chop and change or emulate someone else’s could cost you more money in the long run.

Try to keep your emotions in check and stick to that researched plan you made. There’s a reason you did all that legwork, so it can be sensible to try and stay on the path and follow your own advice.

What kind of assets could you trade?

Once you’ve decided on a platform to use, you’ve done your technical analysis, and you have a strategy ready for your day trading, you can start looking at the kind of assets you might want to trade.

Day trading stocks and shares

Stocks and shares are probably the most commonly traded asset for day traders.

Stocks and shares are small portions of a company’s value that investors can purchase.

In general, there are two main ways that investors can typically derive value from stocks and shares: from changes in the value of the investment, or from dividends.

For day traders, it’s those changes in value that are most interesting, as this is where you can make money if you buy a stock at the start of the day and then sell it for a profit at the end.

However, while stocks tend to produce a return in the long term, they can also be one of the most volatile assets over shorter periods. Daily changes in value where day traders can make money also mean there’s a possibility of losing money, too.

That’s why it’s vital to research a stock or share before you buy.

Day trading funds

Funds allow you to pool your money alongside other investors in a basket of investments. You make money depending on how the underlying assets in the fund perform.

You’ll then pay a percentage-based fee for the fund, typically depending on whether it is actively or passively managed.

The difference here is that actively managed funds are overseen by a fund manager who makes investment decisions on your behalf. Meanwhile, passively managed funds tend to track a specific index, with no manager specifically overseeing the fund’s progress.

As a result, passively managed funds are generally cheaper than actively managed funds.

Arguably, the best way to day trade in funds would be to invest in exchange-traded funds.

Exchange-traded funds are bought and sold on the market, meaning you can buy and sell them throughout the day. This allows you to capitalise on short-term changes in value, often a core tenet of any day trading strategy.

In reality, funds are less likely to make profitable trades when day trading, as changes in value tend to be smaller and high percentage-based charges can severely hamper your returns.

Day trading bonds

Bonds are small loans that investors can buy and then receive an income on in the form of interest payments up to their maturity date.

Companies can issue corporate bonds, and governments can issue bonds that are also known as “gilts”.

Bonds tend to be a safer investment as it requires a company or government entirely crashing for you to lose the entire value. However, this can still happen and while they are considered to be a safer investment, returns on bonds are not guaranteed.

In terms of day trading, bonds can be sold on secondary markets before they mature. As a result, you may be able to sell a bond for more than you paid for it. Obviously, this would mean giving away the right to any income derived from interest payments.

Of course, while the bonds themselves are considered to be a safe investment, trading on secondary markets is less secure as it depends on you finding a buyer and also that they’ll be willing to pay more to you than you initially paid for the bond.

This also means that you could buy bonds on the secondary market and sell them again within a day for a small profit.

Day trading forex

“Forex” is an abbreviation of “foreign exchange”, the process of exchanging one currency for another.

Therefore, forex trading is simply buying foreign currencies for a certain price, waiting for the exchange rate to become more favourable, and then selling them again.

Arguably, forex is even more volatile than other investments because it’s linked to specific countries. As a result, social and political events can directly impact its performance.

For example, the pound sterling took a hit when the Brexit vote was announced, as there was concern over how Britain would perform economically afterwards.

Investment platforms also tend to charge higher fees for forex trading, in part because they tend to charge you for the costs in the exchange rate.

Make sure you know how much you’ll have to pay before you invest or start using a forex broker.

Day trading CFDs

A CFD, standing for “contract for differences”, involves buying an asset from a seller with a contract that says the buyer will pay the difference in settlement price between open and closing trades.

Day traders can make money from CFDs by buying when they expect an upward movement, or by selling when they expect a downward movement.

These are particularly popular for buying foreign currencies and commodities as it means traders don’t have to actually buy the investment.

It’s important to note that the majority of people investing via retail investor accounts lose money when trading CFDs. That’s why CFDs are illegal in the US.

And, although legal in the UK, stockbrokers are required to inform investors on their websites that often, more than 60% of retail investors will lose money trading CFDs.

If you really are intent on trading CFDs, make sure you do your research and take as much advice as possible first.

How much do day traders make?

Working out how much a day trader earns is essentially like asking “how long is a piece of string?”

Realistically, the amount a day trader can make depends on how successful they are with their trades, and how determined they are to continue.

According to job site Glassdoor, the highest salary for a full-time professional day trader in the UK is £116,103, while the lowest is around £21,539. However, these figures are not necessarily accurate for retail investors looking to day trade.

Of course, this presumes that you make any money from your day trading, as there is a possibility that you may end up losing money rather than making any at all.

How much do you need to get started in day trading?

There is no threshold for how much you need to start day trading, other than using an amount that makes it worthwhile to make your trades when you include account fees and commission.

Obviously, the more you invest gives you the opportunity for greater returns. However, this also means bigger losses if your investments don’t work out.

Capital Gains Tax

One issue you may want to bear in mind when day trading is that you may have to pay Capital Gains Tax (CGT) on your earnings, depending on how much you earn from your day trading.

CGT is applied to any gain in the value of assets, including stocks and shares. In the 2021/22 tax year, the CGT rates are 10% for basic-rate taxpayers, and 20% for higher- and additional-rate taxpayers. There’s also an additional 8% if you’re selling property.

Each tax year, you do have a tax-free allowance known as the “annual exempt amount” where no CGT is due. As of the 2021/22 tax year, the CGT annual exempt amount is £12,300. However, if you derive more profit from your day trading than this amount, it will be subject to CGT.

So for example, imagine you make £15,000 profit from day trading in a single tax year. That means your profits would exceed the annual exempt amount by £2,700.

Therefore, if you pay basic-rate Income Tax, you’d owe £270 CGT, or £540 if you pay higher- or additional-rate Income Tax.

These amounts may be relatively small compared to your overall profits. Even so, CGT is still a consideration for day traders, particularly if your profits are considerably larger.

You can entirely avoid CGT by making your day trade investments through a Stocks and Shares ISA. However, bear in mind that it may cost you more in account fees to hold an ISA with an investment platform or provider, depending on which platform you invest with.

Is day trading right for you?

Overall, day trading is a potentially lucrative way to make a profit from financial markets, provided that you do your research and know the risks that you’re taking on. However, it can also be a risky one, with the potential for you to lose money.

Taking financial advice

Whenever you’re pursuing a new investment strategy, it can often be sensible to speak to a professional financial advisor.

A financial advisor can offer personalised and impartial advice on whether day trading is right for you, and how much money you can afford to invest. They may also have access to risk management tools that can potentially help you make more informed investment decisions.

Please note:

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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