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Day trading in the UK: a complete guide

Published on: 05/11/2021 | Modified on: 12/07/2022

Day trading is a popular short-term strategy. This approach has become increasingly popular for trading on the move or at home, thanks to technology such as mobile apps. But despite its convenience, day trading is not for everyone. You need a cool head, vigilance, consistent focus, a strong understanding of trading strategies and a significant knowledge of how and why stocks move to make it work for you.

In this complete guide to day trading for beginners, we explain what the strategy is and how it works, along with examples of how to place a trade and examine the data that day traders use.

KEY POINTS

  • Day trading involves entry and exit points on the same day
  • Most day traders focus on price action trading, which often uses data based exclusively on price movement, rather than wider long-term factors
  • A range of technical analysis tools can be used, enabling you to predict where a stock’s price might go next
  • Profit is built through small short-term trades, which means less chance of a big win, but equally less chance of a big loss
  • Successful day traders need the ability to move quickly, but not panic, and remain disciplined enough to stick to their own rules

What is day trading?

As its name suggests, day or intraday trading is a short-term approach that involves the buying and selling of financial instruments and closing out of positions by the end of the day to profit from small movements in price. Trading in such a short time horizon allows traders to profit from small price fluctuations while protecting themselves from unmanageable risks and negative price gaps that might develop overnight between trading sessions.

This approach has increased in popularity over recent years in the UK. Technology has played a big part in this — thanks to fast broadband and mobile connections we have a wealth of real-time market information at our fingertips. This has led to many more people accessing the markets and placing trades throughout the day to try and profit from volatility as market prices go up and down.

Which strategies can be used?

With CMC Markets, you can trade derivative products like spread bets and contracts for difference (CFDs) to gain exposure to the financial markets without taking direct ownership of an asset, such as a stock or currency pair. This allows you to speculate on whether its price will rise or fall, and the more the asset moves, the more profit or loss you’ll make, depending on which way you bet.

As you’d expect, looking for buying and selling opportunities requires a strategy. Here are some of the most popular day trading strategies that can be used by traders of all experience levels

Price action trading

Price action trading is the foundation for all technical analysis, helping traders to identify trends, breakouts and reversals. The strategy involves looking at the movement of a security’s price over a period of time to determine trading decisions.

Scalping

Scalping is a very short-term strategy whereby the trader buys and sells an individual stock several times over the day, with the aim of making numerous small profits that can add up to a cumulative larger gain (although not always). Some scalpers will trade on the same stock hundreds of times a day — sometimes with only a few seconds’ gap between buying and selling. This strategy requires commitment, concentration and a sharp eye and understanding of short-term charts to make a meaningful profit.

Learn how to scalp >

Short selling

Short sellers target an asset they believe will decline in value, ‘borrow’ it from a broker and sell it on the open market, planning to buy it back later at a reduced rate, make a profit and then return it to the lender. Therefore, short sellers bet on and may profit from a drop in a security’s price, in contrast to traders who prefer to adopt a buy/hold strategy.

However, there is significant cost and risk that comes with short selling. If trading CFDs, any profits you make will be liable for capital gains tax, and commissions are also charged for share positions, meaning that you could end up spending a large amount on costs. There is also significant risk if, after opening a short position, the stock rises. The more it gains, the more you lose, which means there is potentially no limit to your losses.

Momentum trading

Again, this strategy focuses on price action and movements rather than fundamental factors such as the state or overall future of a business (if trading on shares). The technical analysis around momentum trading looks at price projections based on historical price data. While it is all about the price, traders need to be aware of macroeconomic events such as news stories that might suddenly influence those prices.

The old adage ‘buy the rumour, sell the news​’ would apply here; often a price will react positively to the anticipation of an event or announcement. However, by the time the event happens, everyone who wants the stock will have it, so the price will stabilise and many of those who bought it will be looking to cash out.

How to day trade

  1. Choose your product. Spread bets and CFDs are two types of derivatives that allow you to speculate on an asset’s price action without directly owning it. In particular, spread betting is tax-free in the UK*, which is a benefit for many traders.
  2. Explore the variety of financial markets. We offer trading on over 11,500 financial instruments within the share, commodity, forex, treasury, index and ETF markets.
  3. Decide whether you want to buy or sell. Determine your entry and exit points based on whether you think the price of an asset will rise or fall; this will be your strategy.
  4. Keep up to date with news. Whether you are day trading stocks​ or forex, these markets can be impacted in the short term by major news or economic events.
  5. Utilise risk-management controls. Stop-loss orders​ can help to close out positions if the market moves against you, minimising your risk of capital loss.


If you’re feeling apprehensive about the potential drawbacks of day trading, you can open a risk-free demo account, which allows you to practise first with £10,000 worth of virtual funds. Or if you feel ready, skip this stage and open a live account to get started.

Learn from an example

Say a day trader’s technical analysis suggests an upward pattern in a stock’s price. The trader places a buy bet for 1,000 shares at £10 each. Within a few minutes, the price has moved to £10.20 a share, and the trader sells, making 20p per share or £200 on the trade. Because the price has moved only a small increment, the profit is not large, which is why day traders tend to do several trades per day.

Meanwhile, the trader might also identify a stock whose price is also £10 but is falling and decide to short it. The trader borrows 1,000 shares and immediately sells them for £10 each for a total of £10,000. Over the next few minutes, the price falls to £9.80 a share. In response, the trader buys 1,000 shares back at this lower price for a total of £9,800, making a profit of £200.

Are there any costs to be aware of?

Every trader pays fees to their broker fees. These vary depending on the product and market you trade, but most forms of trading are charged according to the spread – that is, the difference between the buy price and the sell price quoted on any given market.

For example, if your broker quoted you a spread of 99-101 and you bought at 100, you would only make a profit from 102 upwards. If you choose to short sell, this will cost more as you have to borrow the shares to sell and pay interest on them.

Other potential costs to bear in mind include:

  • Holding costs – if you keep your positions open overnight. These can be positive or negative depending on the direction of your trade.

  • Guaranteed stop-loss orders – which exits a trade at a certain price point regardless of market volatility.

  • Commission – this only applies to CFD trading but any profits made will be subject to commission fees.

  • Rollover costs — keeping a trade open beyond its expiry date.


That also means there’s no specific answer to ‘how much money do you need to day trade?’. There is no minimum amount to trade with and your budget will largely depend on the markets you choose to trade in, as well as your own personal preferences.

See more of our trading costs >

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Pricing is indicative. Past performance is not a reliable indicator of future results.

Day trade on over 12,000 instruments

What are some indicators used in day trading?

Because of the short-term nature of the strategy, day traders aren’t typically interested in general trends or factors that might indicate an asset’s overall long-term direction. Instead, their technical analysis focuses solely on price; however, it’s rather more complex than that.

Aside from obvious data such as the previous day’s high and low prices, day traders apply a variety of technical analysis indicators​ to help predict price movements, trends and reversals. There is no magic formula on how to day trade, only data. Because every trader has their own rules and attitude to risk, they will make different decision based on the analysis of the data.

With that in mind, here are some of the most popular technical analysis tools used:

  • Simple moving average (SMA). As the name suggests, this is the average price of a security over a certain length of time and is plotted as a single line on a candlestick chart. It’s customisable over different time horizons so is used by both day traders and those wanting to identify longer-term trends.

  • Stochastic oscillator. This indicator highlights price momentum and helps to identify overbought and oversold assets by comparing a closing price of a security with a range of its prices over a period of time.

  • Relative strength index (RSI). This also analyses momentum, but while a stochastic works on the assumption that closing prices will be near the same direction as the current trend, RSI gauges whether momentum is accelerating or decelerating, and can potentially foretell reversals. Therefore, stochastic oscillators work best in stable conditions and RSI is more appropriate when the market is more volatile.

  • Bollinger Bands. These are based on a moving average with two trading bands above and below it, indicating the standard deviations of the stock in question. The bands move further apart in times of volatility and contract together when the market is stable. When the average touches the upper band it’s considered overbought, and if it touches the lower band it is oversold.

  • Mean reversion. This financial theory suggests that after an extreme price move, asset prices tend to return to normal or average levels. Prices do routinely oscillate around the mean or average price but tend to revert repeatedly to that same average value.

Explore our day trading platform and mobile app

Our award-winning trading platform**, Next Generation, comes complete with technical indicators, social trading commentaries and updates from our professional market analysts. This makes it easier for day trading beginners get started with on our platform, as you will never be short of tips or strategies for the financial markets.

We also offer trading on forex, indices and commodities via the internationally recognised MetaTrader 4 platform, for those who are already familiarised with the software. It is important for you to choose the best platform for your trading style, so we have put together a guide to compare our trading platforms​ in terms of prices, features and tools. Learn more by clicking on the link.

Software is also available on the go with our award-winning day trading app**. This is suitable for both mobile and tablet devices on iOS and Android, making trading simpler and easier wherever you may be. Features include mobile-optimised charts and customisable layouts, as well as full order ticket functionality. Learn more about our mobile trading app​.

What are some tips to get started?

As stated, every trader has their own priorities and goals so specific advice that works for one may prove disastrous for another. But the most successful traders tend to discipline themselves to set rules and stick to them, which guards against impulsive or irrational decisions. Here are some popular day trading tips and rules to follow.

  • Manage your risk. Risk-management is about limiting positions so if losses happen, you can afford to soak them up. It’s not about just about whether you win or lose, but by how much. A risk/reward ratio is paramount; it’s no good winning 90% of the time if your profits are outweighed by your few losses.

  • Use stop-loss orders. Using stop-loss orders can act as insurance. Be mindful that standard stop-losses can be prone to slippage when price gapping occurs, whereas guaranteed stop-losses will always close out positions at your chosen level.

  • Stick to the programme. Trading is an unpredictable business in an ever-moving landscape. If you stick to your chosen market and a specific timeframe, this gives you two parameters you can control in an environment that can change very quickly.

  • Stay level-headed. Always try to remain calm and remember the rules you’ve set. You may want to mentally imagine and rehearse your worst-case scenarios so you can keep a level head and know what to do if they did occur.

  • Act decisively but be flexible. Market conditions can change rapidly, and therefore you need to be prepared to be flexible. If you have rehearsed scenarios, you will be able to adapt sensibly to fast-moving events and, if necessary, alter your trading strategy accordingly.

  • Patience is a virtue. Don’t trade for the sake of it. If you can’t find any viable opportunities, it’s much better to wait for the right trade rather than impulsively betting on anything.

  • Make your own decisions. Try not to let other traders’ opinions unduly influence you. What works for someone else may not match your strategy. For bespoke advice, you may want to consult a qualified professional who will be able to offer opinion based on your specific situation.

  • Monitor your stress levels. Day trading requires constant attention and motivation. It can be urgent, frantic, immediate and, if you let it, extremely stressful. If it gets too much, step away — you can always return to trading later.

  • Learn from your experience. Write down your reasons for entering your trades, what you did and how, why and when. This will help you to evaluate your past trades and learn from them.

  • Track your progress. Set goals of where you want to be. After you have been trading for a month, take time to evaluate what you’ve done and whether you achieved what you intended, and ask yourself if there is anything you’d do differently. This helps you refine your technique.

New to day trading?

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How to become a day trader with CMC

To become a day trader and start spread betting or trading CFDs on more than 12,000 instruments within the financial markets, open an account with us. Make sure you understand spreads, margin rates, commission fees and overnight holding costs, which are all important things that should be taken into consideration before getting started within the financial markets.

FAQs

Is intraday trading good for beginners?

Intraday trading is suitable for both beginner and professional traders, but it requires a lot of patience, focus and dedication. Improve your knowledge about technical analysis and learn to read and understand price charts before opening a position.

What chart timeframe is good for day trading?

When day trading, it’s helpful to study a range of chart timeframes, rather than one single timeframe. For example, a day trader could study 15-minute, 30-minute and hourly charts for different purposes, such as overall trend and entry and exit points. Find out how to choose the right timeframe chart for your strategy.

What is the best indicator for day trading?

Most day traders tend to rely on price action rather than filling their charts with technical indicators, as this allows them to focus on clear price direction and trends. However, some indicators can enhance your understanding of the financial market when trading intraday. See how to carry out price action trading or view a list of our most popular technical indicators for day trading.

Is intraday trading safe?

Intraday traders should have good knowledge of the financial market or asset being traded, in conjunction with the use of risk-management tools. When trading volatile markets in particular, the use of a stop-loss order type could be useful, to protect against the potential for making a larger-than-expected loss. See our range of execution and order types.

How much money do day traders make?

Day traders aim to make small but frequent profits based on the fluctuating price movements of an asset. These profits can add up over time if the trader is successful. Day traders, like all spread betters and CFD traders, are subject to spreads. Other trading costs may include commissions, for trading share CFDs, and a premium if using a guaranteed stop-loss order, which is refunded if the GSLO is not triggered. Learn more about our trading costs.


*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

**No1 Web-Based Platform, ForexBrokers.com Awards 2020; Best Telephone & Best Email Customer Service, based on highest user satisfaction among spread betters, CFD & FX traders, Investment Trends 2020 UK Leverage Trading Report; Best Platform Features & Best Mobile/Tablet App, Investment Trends 2019 UK Leverage Trading Report.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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