Day trading in the UK: a complete guide

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.

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 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 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 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.

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.

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.

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:

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:

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​.

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.

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.