How to start day trading on stocks
- Research which stocks you want to trade on – consider volume, liquidity, volatility and range
- Choose how you want to day trade shares – spread betting or CFD trading
- Open a live account to start trading, or build your confidence with a demo account
- Place your first trade
Many day traders in the UK trade with a spread betting account or a CFD account. These derivatives allow you to trade on leverage. This means you magnify your trade size, and the price movements of the stock.
For example, if you traded a stock with a leverage ratio of 5:1, you would only need to put down 20% of the total trade size to open your position. And every 1% change in the share price would result in a 5% change to the amount of money you’ve put down.
Bear in mind this means you could gain or lose money much faster than you’d expect, and you’ll need to have sufficient funds in your account (margin) to keep positions open.
When you spread bet on stocks, you’re staking an amount of money you will then gain or lose per point the share price moves. So if you staked £50 per point and the Lloyds share price rose 10 points, you’d gain £500. If the Lloyds share price fell by 10 points, you’d lose £500.
Spread betting is commission-free and tax-free in the UK. The charge is in the spread – which is the difference between the buy (bid) and sell (offer) prices.
This means that if you’re going long on a stock, your ‘buy’ price would be slightly higher than the underlying price. Conversely, if you’re going short on a stock, your ‘sell’ price would be slightly lower than the underlying price.
Whereas when you trade share CFDs, you pay a commission on both the opening and closing side and there’s no spread. You’ll exchange the difference in price between when you opened your position and when you closed it.
So if you ‘bought’ (went long on) 50 Lloyds shares, and the stock price rose by 10 points, you’d gain £500. On the other hand, if the price fell by 10 points, you’d lose £500. CFD trading incurs Capital Gains Tax on profits, however this can be offset against losses.
Find out more about the difference between spread betting and CFDs
Is day trading for you?
Day trading is not for the faint-hearted and requires a lot of commitment and time. While long-term investors look for stable stocks that can deliver gains over the long term, day traders are extremely short-term focused and hunt for volatility they can capitalise on. This can produce better rewards but also comes with higher risk.
Find out how to maximise your trading success
Day traders are often experienced and well versed in the market, understanding the dynamics and how markets operate. You should feel confident in your trades and make them in areas where you feel comfortable. If you’re new to day trading and want to test a strategy out before implementing it then you can use a demo account to get a feel for things.
