Complete Guide to Short-term Day Trading: Taiwan and US Stock Trading Rules, Risks, and Practical Tips

Why Has Day Trading Become a Market Favorite?

In the stock market, investment styles vary—some emulate Buffett’s long-term holding approach, while others prefer quick in-and-out trades on a daily basis. In recent years, with increased market volatility, this “day trading” method has gradually become mainstream. In Taiwan, day trading accounts for nearly 40% of trading volume, and in the US, the T+0 system makes intraday trading even more naturally suited.

What is day trading?

Day trading refers to completing both buy and sell transactions within the same trading day (or selling first and buying back later), ensuring all positions are fully closed before market close. It is generally divided into two types:

• Buy-day trading: Buy stocks today, sell before the midday close
• Sell-day trading: Short sell first, buy back before the close

Since Taiwan’s Financial Supervisory Commission opened up stock day trading in 2016, this short-term, profit-seeking trading style has rapidly gained popularity.

Why does stock day trading attract investors?

Reducing overnight risk is the core appeal. Taiwan stocks are often influenced by news from Hong Kong, Europe, and the US during trading hours, and major news overnight can cause gaps at the open the next day. Day trading allows traders to complete buy and sell transactions during the trading day, leaving no holdings overnight, thus completely avoiding international market overnight risk.

Besides, day trading offers three major advantages:

1. Enhanced capital turnover — Multiple entries and exits within the same day, only risking the spread, can improve capital efficiency under ideal conditions
2. Magnified leverage effect — Since day trading profits are based on price differences, the trading value can exceed the actual capital, amplifying gains (though losses are also magnified)
3. Flexibility in responding to market volatility — Short-term traders can seize opportunities within minutes, requiring high market responsiveness but offering unique profit mechanisms

Hidden Costs and Risk Traps of Day Trading

Behind the seemingly attractive day trading mechanism lie four major risks:

Trading costs erode profits

Although the government offers a “half trading tax” benefit for day trading, high-frequency trading still incurs significant costs. For example, in Taiwan, if you make 5 trades in a day with NT$100,000 capital per trade and a profit of only 0.5% (NT$500) per trade, after commissions and taxes, net profit might only be NT$100–200. A small loss on one trade can wipe out earlier gains, leading to a situation where you are “earning the spread but losing the cost” over time.

Psychological pressure from high-frequency operations

Taiwan stocks often experience rapid 1-2% swings during trading hours due to foreign investor activity, industry news, and overall market sentiment. For day traders, such volatility can determine win or loss within minutes. Traders need to monitor the market intensely, make quick judgments on market direction, and set stop-loss and take-profit orders instantly. Under high pressure, they may hesitate and miss opportunities or make impulsive decisions—especially inexperienced traders, for whom short-term volatility risks far outweigh potential gains.

The double-edged sword of leverage risks

Many investors use margin financing (long positions) or securities lending (short positions) to increase capital utilization. In Taiwan, initial margin for margin trading is about 50% (2x leverage). If the market reverses, losses are amplified. For example, using NT$100,000 of margin to buy NT$200,000 worth of stock, a 5% decline results in a NT$10,000 loss (10% of principal). In extreme cases—such as hitting the limit up/down or inability to close positions—losses can escalate further, and brokers may demand additional margin, risking margin calls.

Easy to fall into addictive cycles

The instant profit feedback from day trading can make investors addicted to the thrill of short-term gains, gradually neglecting long-term investment performance. Many start with “experimental trading” and evolve into “frequent trading,” sometimes placing orders based on feelings rather than analysis, ultimately suffering from “small continuous losses” or “single large loss,” which consumes time, energy, and erodes capital.

Self-Assessment Checklist for Day Traders

Day trading is a high-risk, highly professional operation, not suitable for all investors. Consider whether you meet the following criteria:

1. Ample time and ability to monitor the market continuously — Day trading requires quick decision-making within short time frames. If you cannot focus on the screen, you risk missing entry or exit opportunities. For office workers, the risk increases if they cannot step away from work.

2. Strict discipline and risk management skills — Set clear stop-loss points and adhere to them; avoid gambling or violating your rules. Control position sizes to manage risk exposure.

3. Strong stress resistance and quick decision-making — Market can fluctuate significantly within minutes. If your emotions are easily affected (panic selling, greed chasing), it’s dangerous. Impulsive decisions are likely.

4. Some investment experience and technical analysis skills — Ability to interpret intraday charts, volume-price relationships, and use tools like moving averages, candlestick patterns, support/resistance levels. Beginners without basic knowledge should avoid rushing into day trading, as it’s akin to paying tuition with your capital.

5. Sufficient capital and ability to bear losses — Day trading is not a guaranteed profit tool but a speculative approach with high risk. Small capital plus high leverage means very low tolerance for errors, risking margin calls or total wipeout. Suitable for investors with relatively ample funds.

Five Types of Day Trading Strategies

Spot Trading (Cash)

Unique to Taiwan stock market and the most common form of day trading. Currently, over 1,600 stocks in Taiwan support spot day trading.

US Day Trading

US markets operate on T+0, allowing buy and sell within the same day without overnight holdings. However, the Pattern Day Trader (PDT) rule applies: with less than US$25,000, you can only day trade up to 3 times in 5 days; with US$25,000 or more, no limit.

Margin and Securities Lending Day Trading

Margin day trading involves buying on margin and selling within the same day; securities lending involves short selling and buying back the same day. Be aware of interest costs, borrowing fees, and short sale risks.

Derivatives Day Trading

Involves buying and selling futures, options, and other derivatives within a trading day. Many short-term traders prefer Taiwan index futures due to leverage and low costs.

Algorithmic / High-Frequency Day Trading

Uses automated computer algorithms to identify buy/sell points, focusing on small profits from high-frequency trades. Costs are low but technical skills are high; difficult for retail traders to implement.

Comparison of Day Trading Rules: Taiwan vs US

Cost Analysis of Day Trading Fees

Day trading fees include broker commissions and transaction taxes.

Taiwan stock day trading cost example

Suppose buying 100 lots of TSMC (10 million shares) at NT$600:

• Transaction amount = 600 × 100,000,000 = NT$60 billion
• Commission (approx. 0.04275%) ≈ NT$25,650
• Stamp tax (half for day trading) ≈ NT$45 million
• Total cost: about NT$70.65 million

The main cost in Taiwan day trading comes from transaction tax, which is why many investors are shifting toward US stocks for day trading.

US stock day trading cost example

Suppose buying 1,000 shares of NVIDIA at $1,000:

• Transaction amount = $1,000 × 1,000 = $1 million
• Broker commission: usually free or minimal
• SEC/FINRA fee ≈ $0.000145 × 1,000 = $0.145
• Total cost: less than $1

US stocks have lower costs, but traders should also consider bid-ask spread, slippage, and borrowing interest.

Practical Steps for Stock Day Trading

High difficulty and risk, but potential rewards are significant. It’s recommended to start with small capital for trial before scaling up. Here are three key steps:

( Step 1: Selecting the Underlying

Choose suitable stocks from thousands based on popularity and liquidity. Avoid stocks with low prices, low volatility, or thin trading volume.

News monitoring — Stocks covered by media tend to attract attention, and both positive and negative news can amplify intraday volatility, creating trading opportunities.

Research reports — Institutional reports can influence large investors’ holdings, and their movements are critical for day traders.

Quantitative data ranking — Observe rankings of strong stocks, weak stocks, turnover rates, and trading volume. Especially focus on stocks with trading volume suddenly increasing by over 50% compared to the 5- or 10-day average.

) Step 2: Market Direction Judgment

Day trading can go long or short, with two main strategies:

Long positions — Focus on “trend-following” or “buying on pullbacks.”

Key indicators for long entries — Watch previous lows and opening prices; observe the 5-minute K-line lows and highs (different from daily K-line used in swing trading). Also, monitor overall market momentum: if the market weakens, individual stocks tend to be dragged down; if a stock is significantly stronger than the market, consider holding until previous high.

Short positions — Require a bearish market environment. For example, industry-specific bad news or geopolitical events causing certain stocks to weaken. Use 5-minute K-line as a basis; if the market is weak but the stock is relatively strong (market lows are lower but stock lows are higher), consider covering the short.

Step 3: Trading Discipline and Risk Management

Discipline is crucial for successful day trading.

Timely profit-taking and stop-loss — It’s hard to buy at the lowest and sell at the highest. Set realistic stop-loss and take-profit levels, e.g., around 5% for profit target and 2-3% for stop-loss. Avoid holding until near market close—late exits may not execute, turning holdings into unsettled positions with higher risk of “closing at the end” panic selling.

Capital management — Even though day trading involves same-day buy and sell, wrong directional bets may require holding overnight. Maintain sufficient reserve funds on your account before trading. Follow the principle: “Trade with what you have.”

Mindset — The most important attitude is “decisiveness and no greed.” Be quick to enter when opportunities arise; learn to exit promptly regardless of profit or loss. Avoid the illusion of “more gains later.” Only with this mindset can you minimize losses and achieve steady profits.

2025 Taiwan and US Stock Day Trading Watchlist

Popular Taiwan stocks suitable for day trading

( Popular US stocks suitable for day trading

These stocks have high daily trading volume and liquidity, suitable for short-term day trading.

Market Perspective on Day Trading

Day trading is fundamentally a trading method that aims to improve capital turnover and avoid overnight international market risks. However, risks are significant—many investors over-leverage for quick profits, exposing themselves to larger-than-expected risks; international markets’ overnight volatility can cause gaps at open, missing profit opportunities.

Additionally, Taiwan stocks involve transaction costs: commissions and taxes, which increase trading expenses. Compared to US stocks, which have lower costs, more investors are choosing US stocks for day trading.

Regardless of the market, day traders must recognize their own capabilities and risk tolerance, establish disciplined trading systems, and operate cautiously to achieve steady gains amid short-term volatility.