Stock Day Trading Practical Guide: T+0 Buying and Selling Rules and Tool Comparison

What is Day Trading? Understanding the T+0 Trading Mechanism

Many investors are troubled by the Taiwan stock T+2 settlement system—buy stocks today, sell them only the next day. To break through this limitation, day trading has emerged. Day trading refers to using the brokerage’s margin trading and short selling services to complete buy and sell transactions within the same trading day, enabling buying and selling stocks on the same day.

In simple terms, day trading is a short-term trading strategy aimed at earning price differences. Investors might buy TSMC at 9:15 AM and sell it at 2:30 PM to close the position. This trading method does not require holding overnight positions but demands high judgment and risk control skills from investors.

It is important to note that being unable to sell during day trading is a common problem for beginners. This usually results from insufficient liquidity or choosing stocks unsuitable for day trading. Only component stocks of the Taiwan 50 Index, Mid-Cap 100 Index, and the Fu-Cui 50 Index (about 200 stocks) are eligible for day trading.

Spot Day Trading vs Margin & Short Selling Day Trading: Differences in Implementation

Spot Day Trading: Trading with your own funds

Spot day trading involves using your existing funds to execute trades within the same day. The operation is straightforward—buy when expecting prices to rise and sell when expecting prices to fall; or sell first and buy back later.

Account Opening Requirements:

• Broker account open for at least 3 months
• At least 10 transactions in the past year
• Sign the risk disclosure statement

Transaction Costs:

• Stamp tax: 0.15%
• Transaction fee (buy/sell): 0.1425%

Margin & Short Selling Day Trading: Borrowing money or stocks from the broker

Margin and short selling involve borrowing funds (margin) or stocks (short selling), which carry higher risks and costs compared to spot day trading.

Account Opening Requirements:

• Broker account open for at least 3 months
• At least 10 transactions in the past year
• Transaction amount over NT$250,000 in the past year
• Need to open a credit account

Transaction Costs:

• Stamp tax: 0.3%
• Transaction fee (buy/sell): 0.1425%
• Borrowing interest rate (average): 0.08%

Real Issues and Solutions When You Can’t Sell During Day Trading

A common dilemma in day trading is being unable to sell. This often occurs in the following situations:

Cause Analysis:

• Choosing stocks with low liquidity (small caps, obscure stocks)
• Market volatility causing large bid-ask spreads
• Trading during illiquid periods (non-active hours)
• Trading stocks outside the tradable scope

Solution Approach: Ensure to select component stocks of the Taiwan 50 and Mid-Cap 100 indices, avoid odd-lot trading (which does not support margin trading), and operate during high-liquidity periods such as opening and closing hours.

Advantages and Risks of Day Trading

Three Major Advantages

1. Immediate Stop-Loss Positions can be closed within the same day, reducing passive holding risks.

2. Low Capital Requirement Buy and sell to settle on the same day, generally eliminating the need for two-day settlement, thus reducing capital occupation costs.

3. Avoid Overnight Risks Prevents losses caused by unexpected news or gaps overnight, especially beneficial for investors with limited judgment ability.

Three Major Risks

1. Leverage Risks Margin trading involves financial leverage, which can amplify losses. Insufficient funds may lead to default risks.

2. High Costs Erode Profits Accumulated transaction fees and stamp taxes can significantly eat into profits, potentially turning gains into losses.

3. Time and Energy Intensive Requires real-time monitoring of market fluctuations, chip movements, and news, demanding high concentration and quick reactions. Any delay in judgment may lead to losses.

Futures, Options, and CFDs: Three Natural T+0 Trading Instruments

Besides stock margin trading, there are three financial instruments inherently supporting T+0 trading.

1. Futures Trading

Futures are standardized contracts where traders settle the underlying asset at a predetermined time and price. About 96% of futures market participants are speculators.

Features:

• Naturally support T+0 trading
• High leverage, two-way trading (long and short)
• Must be settled at expiration

Account Opening Requirements: Margin of tens of thousands of NT dollars

Fees:

• Transaction tax: 0.02%
• Various fees: about NT$30

2. Options Trading

Options give the holder the right (not obligation) to buy or sell at a specified price within a certain period. Compared to futures, the exercise right is at the discretion of the buyer.

Features:

• Naturally support T+0 trading
• Low initial capital (premium of a few thousand NT dollars)
• Flexible trading strategies

Account Opening Requirements: Only a small premium needed

Fees:

• Transaction tax: 0.1%
• Various fees: about NT$10+

3. Contracts for Difference (CFD)

CFD is an over-the-counter derivative contract between the client and the broker, without owning the underlying asset. It allows trading in forex, gold, stock indices, individual stocks, oil, cryptocurrencies, etc.

Features:

• Naturally support T+0 trading
• Very low threshold (opening with tens to hundreds of USD)
• Wide range of underlying assets
• No expiration date

Account Opening Requirements: Generally no minimum

Fees: Mainly spread costs

Comparison Table of Costs and Risks for the Five Major Day Trading Tools

When Is Day Trading Most Suitable

Day trading relies on “timing and conditions”:

• Opening hours (9:15-10:00): Market sentiment is high, volatility is large, trading volume is sufficient
• Closing hours (14:00-13:30): Before fund settlement, volatility is prominent
• During major news releases: Price movements driven by news provide opportunities
• Avoid midday trading: Liquidity is relatively weaker

Common Questions and Answers

Q: Can odd-lot stocks be day traded?
No. Odd-lot trading does not support margin trading, and can only be sold the next day at the earliest.

Q: Are there restrictions on US stock day trading?
Yes. For regular accounts, up to 3 day trades within 5 business days; if assets exceed US$25,000, no limit; below that, accounts are frozen for 90 days.

Q: How to avoid being unable to sell during day trading?
Choose stocks with sufficient liquidity (Taiwan 50, Mid-Cap 100 component stocks), operate during active trading hours, and avoid small caps and obscure stocks.

Final Reminder

Since Taiwan stock day trading was opened in 2014, it has accounted for nearly 40% of total trading volume. The appeal lies in quick profit from price differences, but its high costs, risks, and time consumption are often overlooked.

Being unable to sell during day trading reflects the real liquidity issues in the market. Selecting suitable stocks, timing your trades properly, and setting strict stop-loss points are prerequisites for success. For investors with limited funds, low risk tolerance, or inability to monitor the market constantly, day trading may not be the best choice. Assess your own capacity carefully before entering the market—rational investing starts with self-awareness.