Ultimate Guide to Day Trading [date_month_year]

Day Trading

What is Day Trading?

Day trading refers to a style of trading that involves very short-term exposure to a financial instrument, typically less than one day.

It is sometimes referred to as ‘swing trading’, as the trader is looking to benefit from sharp fluctuations or ‘swings’ in the market, in order to make a profit.

Day trading is widely considered more speculative and riskier than the traditional buy-and-hold form of investing. This is due to markets normally moving in smaller amounts in a day than they would over longer time periods.

For traders to sufficiently profit from these smaller movements, they would need to risk greater exposure to the market.


Who is a Typical Day Trader?

Traditionally this form of trading has been associated with Investment Bankers, Software engineers and those with a specific interest in financial markets. However much has changed in recent times and there is no longer a typical day-trader.

Nowadays anyone from any background can be a day-trader, from a retired pensioner through to a first-year student. Anyone with a small amount of disposable capital, and the desire to speculate on riskier investments, can now day trade.

Day Trading mobile

Why Day Trade?

To make a Profit

Day Trading can be a very profitable business if you are disciplined and manage your risk effectively. Even trading with a small amount of capital, or just looking for small price movements, the volatility of many markets will still provide ample opportunities to build profits.

Unfortunately, as with any opportunity to make profits quickly, losses can also occur equally quickly.

Reduce Risk

Even though day trading is risky, it can also avoid some other types of risks compared to other forms of trading. The longer a position is held for, the more time it is exposed to a potentially large market fluctuation. Holding a shorter-term position reduces this time risk exposure.

A shorter exposure period provides the trader with an opportunity to closely monitor the trade and react accordingly. It’s impossible to watch the markets all the time, leaving you exposed if you become distracted or are not paying attention.

Similarly, if you have a position when the markets are closed, you could be exposed to a significant market changing event happening that you are not able to trade out of. By exiting the trade before market close, this risk is removed.

Reduce Costs

Trading on leverage requires the borrowing of capital to increase your exposure. The cost to borrow this capital that is normally charged at the end of the trading day.

If the trading position is closed before this end-of-day charging point then the borrowing costs can be avoided.


Day trading can be undertaken wherever and whenever you choose and you are not restricted to a specific time or place when you have to trade. If you are frequently on the move, most Brokers offer mobile apps where you can monitor your positions and place your trades and orders remotely.

Even your research and strategising can be conducted at a time that is more convenient for you. There will be times when it would be beneficial to be closely monitoring the markets. However you can leave orders your entry and exit trades with your Broker, then you won’t miss any trading opportunities or leave yourself unnecessarily exposed.

Success Mirroring

If you can’t beat them, then join them. If you don’t have the time or desire to create your own trading strategy, there are many tools available to copy or replicate other successful (or not so successful) traders.

Known as Social or Copy trading, these facilities have become very popular and give users the opportunity to research the performance of these traders and piggy back off of their success.


Why has Day Trading become popular?

Opportunity – Events such as the Coronavirus pandemic have resulted in many people being confined to their homes with more free spare time on their hands. Looking for ways to supplement their income, many have been attracted to day-trading due to its convenience, and the increased market volatility the pandemic presented.

Access – Brokers now provide easy access to a wide range of markets such as FX and Commodities, many of which were previously only accessible to trade by High-Net-Worth individuals or market professionals.

Lower Capital Requirements – Brokers also now allow you to trade with much smaller amounts of capital than were previously required. You can open an account and trade with as little as $100, whereas previously amounts closer to $10,000 were required.

Media Coverage – Interest in some financial instruments have escalated beyond that of just the financial services industry. Many of the general public are now familiar with brands such as Tesla with its eccentric leader Elon Musk.

Stocks such as Gamestop and AMC have become household names when thousands of small investors on Reddit collectively bought stock to send it skyrocketing.

New Markets – Similarly, Cryptocurrencies such as Bitcoin, Ethereum and Dogecoin, that provide an alternative and unregulated currency to the Dollar and Euro etc.

Their increased media exposure has led to the public looking to speculate and profit from these products as they rise and fall from popularity.

Trading Screens

What makes a successful Day Trader?

The most successful traders are not just profitable in the short-term, but profitable over an extended period of time.

Experiencing beginners’ luck can be the worst thing to happen to a novice trader. Early success leads to a belief that the initial strategy can quickly be scaled up to increase profits, but it often ends with dire consequences.  The most common mistakes are trading too often, and with too much size/risk.

There are a number of common characteristics and traits of successful traders and we have listed them below.


A solid strategy is the first and most obvious trait of a successful trader. Without one there is almost no hope of being profitable. Determining a strategy can be an iterative process, taking into account experience, extensive research, and back-testing any theories.

Strategy should be treated as an ongoing process of constant refinement as the strategy is improved as more data is collected and tested undertaken. We suggest the following books to help you research and hone your strategy.

Risk Management

Day trading typically requires trading on small price movements, requiring large trade sizes to maximise profit. In order to increase this exposure size, traders typically use leverage, placing a small amount of capital as a deposit and effectively borrowing a much larger amount.

This leverage can magnify gains, but equally can magnify losses, so understanding the maximum level of real exposure to a trade is vital to understand what potential losses could be.

The experienced trader will understand what the likely maximum price movements could be, then calculate the appropriate trade size to ensure the exposure would not be too great that potential losses would be unmanageable.


Patience is a vastly underrated requirement for day trading. There may be times where a strategy yields few opportunities, and the patient trader will wait until one clearly appears, rather than trying to force a trade through when one doesn’t exist.


Many a good strategy has ended up in failure because the trader had not been disciplined enough to execute effectively.

Valuable time spent researching, back-testing and refining a strategy will come unstuck if a trader panics and deviates from the original strategy, particularly if the original strategy would have yielded a more positive outcome

Note, this does not mean you must always stick precisely to your strategy, as this could also lead to additional risks and/or losses.

You must always be able to adapt to changing circumstances, building in contingencies for unexpected events. Any deviations from your strategy should be emotionless and based on rational thinking, rather than from impulsion or panic.

Product/Market Knowledge

Not fully understanding a market or product can prove very costly, particularly when unusual circumstances that effect that product occur. Conversely, a good knowledge can help present opportunities to profit.

A good example of this is when the price of Oil turned negative in April 2020. Many novice traders presumed oil prices could not drop below $0, and so began buying huge amounts when the price dropped to just a few cents. The price then plummeted through $0 and down to as low as minus $37 a barrel, causing them to experience huge losses.

If some of these traders had researched and understood the product they were trading on and its characteristics, they could have avoided these losses.


The more experienced the trader, the more they will develop an instinct for the market. They will see possible opportunities sooner, or more frequently, enabling them to react accordingly.

The experienced trader will better manage the Patience, Risk and Discipline axis, and better control their emotions in times of extreme volatility or uncertainly. It is these times where gains can often be maximised and losses mitigated, defining the level of success of the trader.

Good Broker

Finally, trading through a good Broker can be an influential factor in a trader’s success. Poor execution, excess slippage, bad or slow prices, high trading costs etc will all impact profitability, or cause you to miss trading opportunities.

To see our guide to Choosing a Broker, click here

To see our reviews of various Brokers, click here

Alex Avatar

By Alex

Alex joined City Index as a Junior Dealer in 2000, going on to become deputy head of their FX, Bonds and Commodities Desk. In 2006 he left to take on the challenge of setting up the Spread Betting and CFD desk at ODL Markets, where he was head for 4 years covering its acquisition by FXCM. Alex then left to setup the Broker GKFX where he was Managing Director for a number of years, taking it from startup to a highly profitable business operating in over 20 countries around the world. More recently Alex has acted as a consultant to the Financial Services industry, and has been responsible for successful projects such as implementing the MT4 platform into ETX, and launching Broker Cashback services to Traders. Alex enjoys keeping fit and golf.