A Complete Guide to Day Trading: Comparing Spot Day Trading, Margin & Short Selling Day Trading, and Other T+0 Strategies

What is T+0 Trading and Day Trading

In the Taiwan stock market, investors are traditionally limited by the T+2 trading system—stocks bought today can only be sold after two days. However, through specific methods, you can achieve same-day trading (Day Trading), known in market terminology as Day Trading or T+0 Trading.

This concept appears to break trading rules, but in reality, it is realized through the margin trading and securities lending mechanisms provided by brokers. Simply put, Day Trading involves completing the “buy” and “sell” actions within the same trading day to profit from price fluctuations. Many investors are attracted to Day Trading because:

• They want to avoid overnight holding risks
• They seek quick stop-loss or take-profit
• They aim to leverage intraday volatility to seize short-term opportunities

Cash-Based Day Trading vs Margin Trading Day Trading: Two Implementation Methods

Cash-Based Day Trading: Using own funds for same-day transactions

Operational Logic: Use your own cash to buy and sell within the same trading day (or sell first, then buy), completing the Day Trade.

Applicable Situations:

• Going long (bullish): Buy with cash + sell with cash within the day
• Going short (bearish): Sell with cash + buy with cash within the day

Account Opening Requirements:

1. Open an account with a broker for at least 3 months (not limited to the same broker)
2. Complete more than 10 buy/sell transactions in the past year
3. Sign risk disclosure and same-day cancellation agreements

Cost Components:

• Securities Transaction Tax: 0.15%
• Transaction Fees (buy/sell): 0.1425%

Margin Trading Day Trading: Borrow money or stocks from brokers for same-day trading

Operational Logic: Instead of using all your funds, borrow money (margin financing) or stocks (securities lending) from the broker to execute the trade, then return the borrowed assets after closing. This is akin to leverage, amplifying both gains and risks.

Trading Methods:

• Margin Long (bullish): Margin buy + securities lend sell within the day
• Securities Short (bearish): Securities lend sell + margin buy within the day

Account Opening Requirements:

1. Open an account with a broker for at least 3 months (not limited to the same broker)
2. Complete more than 10 buy/sell transactions in the past year
3. Total transaction amount over the past year exceeds NT$250,000
4. Need to establish a credit account

Cost Components:

• Securities Transaction Tax: 0.3%
• Transaction Fees (buy/sell): 0.1425%
• Loan interest rate (average): 0.08%

Advantages of Day Trading

Since Taiwan opened up cash-based Day Trading in 2014, this trading method has continued to grow in popularity. Market data shows that Day Trading accounts make up nearly 40% of total trading volume, with participant numbers increasing yearly. The advantages include:

Fast Stop-Loss and Take-Profit: No need to wait until the next day; if you realize a mistake or reach your profit target, you can close the position immediately within the day, preventing overnight losses from expanding.

Low Cost: Regular stock transactions settle after two days, but Day Trading involves buying and selling within the same day, settling immediately. This “no capital” trading characteristic allows small investors to participate.

Avoid Overnight Risks: If an order is placed incorrectly or market conditions change unfavorably, traditional trading requires waiting until the next day to sell, risking additional losses. Day Trading allows for real-time adjustments.

Risks and Challenges of Day Trading

Behind the seemingly attractive Day Trading, many hidden risks exist, and many losses are due to neglecting these dangers:

Leverage Trap: Margin Day Trading uses financial leverage, which can magnify gains but also losses. Investors lacking sufficient funds should be cautious, as defaulting can lead to huge debts.

Overtrading: Investors often use leverage beyond their capacity. When the market moves favorably, leverage can cause premature profit-taking; when wrong, slow reactions can lead to significant losses. Ultimately, losses often far exceed gains.

Cost Erosion: Although per-trade costs (fees, taxes, interest) seem low, multiple trades within a day accumulate costs that eat into profits. Many investors find that their hard-earned gains are wiped out by these intermediate costs.

High Mental Strain: Day Trading requires constant monitoring; unlike swing trading, it cannot relax the time horizon. Even with strong stocks, intraday prices can fluctuate significantly, requiring attention to individual stock trends, market movements, capital flow, and news, making the process much more demanding.

Other T+0 Trading Instruments: Futures, Options, CFDs

Besides achieving Day Trading through broker margin and securities lending, other financial products inherently support T+0 trading, often with lower costs:

Futures: High leverage, high liquidity

Futures originated from agricultural commodity delivery mechanisms and evolved into hedging and speculative tools. About 96% of futures market participants are speculators.

Features: Futures trading is inherently T+0, allowing unlimited transactions within the same day. Futures offer high leverage and the unique ability to go both long and short.

Account Opening: Requires sufficient margin (usually tens of thousands of NT$) to start trading.

Costs:

• Transaction Tax: 0.02% of NT$100,000
• Various fees: approximately NT$30 (varies by underlying asset)

Options: High flexibility, relatively low entry barrier

Options are derivatives based on futures, giving holders the right (not obligation) to buy or sell the underlying at a specified price within a certain period. Unlike futures, options contracts are optional to execute.

Features: Options trading is also naturally T+0. Compared to futures, options require only a small premium (a few thousand NT$), greatly lowering entry barriers.

Account Opening: Traded in lots (contracts), with less capital requirement than futures.

Costs:

• Transaction Tax: 0.1%
• Fees: around NT$10–NT$20

CFDs (Contracts for Difference): Widest underlying scope, lowest threshold

CFD is a contract between the client and broker. Unlike futures and options, CFDs do not involve ownership of the underlying asset and have no mandatory settlement date, allowing indefinite holding.

Features: CFDs can trade a wide range of assets—forex, gold, stock indices, individual stocks, oil, and even cryptocurrencies. CFDs are inherently T+0, with costs usually expressed as spreads.

Account Opening: Very low threshold, starting from tens to hundreds of dollars.

Costs: Mainly the spread (difference between bid and ask prices).

Cost and Risk Comparison of the Five Major Trading Tools

Practical Workflow for Day Trading

Regardless of the tool used, the basic logic of Day Trading is straightforward:

Going Long (Bullish): Buy within the day → Sell, profit from price increase
Going Short (Bearish): Sell within the day → Buy back, profit from price decrease

Taking CFD trading as an example, the process is:

1. Choose a trading platform and complete account opening
2. Select underlying assets (stocks, indices, commodities, etc.)
3. Perform technical and fundamental analysis to judge short-term trend
4. Place orders: Click buy if bullish (long), click sell if bearish (short)
5. Set trading parameters: Establish stop-loss levels to manage risk, and close positions at target prices for profit

CFD’s advantage lies in its flexible leverage and low investment threshold. For example, trading Apple stock on some platforms requires only about $8 to control one lot, making it suitable for short-term swing trading. However, this also increases risk, so setting stop-loss orders carefully is essential.

Frequently Asked Questions

Q: Can odd-lot (partial lot) shares be used for Day Trading?
A: No. Whether during or after trading hours, odd-lot shares are not available for margin trading and can only be sold the next day. Day Trading is only applicable to full-lot stock transactions.

Q: Which stocks in Taiwan can be Day Traded?
A: Currently, stocks included in the Taiwan 50 Index, Mid-Cap 100 Index, and OTC Market’s Fubon FTSE Taiwan 50 Index (about 200 stocks) are eligible. Additionally, futures, options, or CFDs can be used for other stocks. In the US, regular accounts are limited to no more than 3 trades in 5 business days unless assets exceed US$25,000; accounts below that are frozen for 90 days.

Q: When is the best time for Day Trading?
A: Day Trading is usually short-term; optimal times include the first 30 minutes after market open, the last 30 minutes before close, or during major news events with high volatility.

Conclusion

Day Trading suits investors with sharp short-term market judgment, capable of quick stop-loss and take-profit, and unafraid of high-frequency market changes. However, it is not suitable for everyone—it demands sufficient capital, high risk awareness, long hours of monitoring, and quick decision-making.

If you lack any of these qualities, Day Trading may not be appropriate. Before engaging, objectively assess your trading skills and risk tolerance. Avoid blindly following trends, as losses can come quickly and severely.