The Complete Guide to Ultra-Short-Term Day Trading: Comparing Rules for Taiwan and US Stocks, Risk Management, and Practical Strategies

What is Day Trading?

What is day trading? Simply put, it refers to completing stock buy and sell transactions within the same trading day, ensuring all positions are closed before the market closes. It is generally divided into two types: buy-day trading (buy and sell on the same day) and sell-day trading (short selling during the day and buying back to close the position on the same day).

In Taiwan’s stock market, since day trading was opened in 2016, its trading volume has accounted for nearly 40% of the market transactions. In contrast, the US stock market employs a T+0 settlement system, allowing investors to execute multiple trades within the same day with greater flexibility.

Why Does Day Trading Attract Investors? Three Core Advantages

1. Avoid Overnight Risks

During Taiwan’s trading hours (9:00 AM to 1:30 PM), the market is easily influenced by news from Hong Kong, Europe, the US, and other international markets. If significant negative news emerges overnight, the market may gap down at opening. Through day trading, investors can complete buy and sell transactions during trading hours, leaving no holdings after the market closes, thereby completely avoiding risks from international market fluctuations overnight.

2. Improve Capital Turnover Efficiency

Multiple entries and exits within the same day can theoretically increase the number of times capital is used, amplifying profit potential. For example, using the same capital for transactions in the morning, noon, and afternoon effectively turns over the capital three times.

3. Leverage Amplification

Day trading only requires paying the margin for the price difference, allowing the trading value to exceed actual available funds. In Taiwan, initial margin for margin trading day trading is about 50% (equivalent to 2x leverage), while in the US, it depends on the amount of capital, enabling small-capital investors to leverage large trades.

The Real Risks Behind Day Trading

However, greater attraction often comes with greater risks.

High Costs of Fees and Taxes

Although the government has halved the day trading tax (from 0.3% to 0.15%), frequent trading fees can quickly eat into profits. For example, in Taiwan, if you make 5 trades in a day with a principal of NT$100,000 per trade and a profit of only 0.5% (NT$500) per trade, after deducting fees and taxes, the net profit might only be NT$100–200. A small loss on any trade can wipe out previous gains.

Intense Intraday Volatility and Psychological Pressure

Taiwan stocks often experience rapid 1%-2% fluctuations during trading hours due to foreign investor activity, company announcements, and overall market sentiment. Such volatility can determine the outcome of a single trade within minutes, imposing high cognitive and psychological stress on investors. Many cannot maintain focus for long periods or make quick decisions under pressure, leading to losses.

Leverage Is a Double-Edged Sword

Using margin or short selling amplifies losses simultaneously. For example, with NT$100,000 of capital, if you buy NT$200,000 worth of stock via margin and the stock drops 5%, your actual loss is NT$10,000 (10% of your principal). In extreme cases (such as hitting limit up/down and being unable to close positions), losses can escalate further, risking margin calls from brokers.

Easy to Become Psychologically Addicted

The immediate feedback and quick profits from day trading can easily lead to addiction, resulting in uncontrolled frequent trading. Many start with “experimental” trades and escalate to “gambling-style” trading, ignoring market rhythm and relying on gut feelings. This often results in small consecutive losses or a single large loss, draining energy and eroding capital.

Who Is Suitable for Day Trading?

Day trading requires specific conditions and qualities:

• Ample Time: Must monitor the market throughout; working professionals often cannot do this.
• Strong Discipline: Must strictly adhere to stop-loss and take-profit rules, avoiding impulsive violations.
• High Stress Tolerance: Minute-to-minute market swings can be significant; emotional stability is crucial.
• Technical Skills: Need to understand intraday charts, volume-price relationships, moving averages, support and resistance levels, etc.
• Sufficient Capital: As day trading is high-risk speculation, the ability to bear losses is essential.

Five Main Methods of Day Trading

Spot Stock Day Trading

Unique to Taiwan, investors directly buy and sell stocks with their own funds. Currently, about 1,600 stocks support spot day trading.

Intraday Trading (US Day Trading)

Closing all positions within the same day, without holding overnight. The US has the Pattern Day Trader (PDT) rule: with less than $25,000 in assets, a maximum of 3 day trades are allowed within 5 trading days; with over $25,000, unlimited.

Margin and Short Selling Day Trading

Margin day trading: borrow funds to buy and sell on the same day. Short selling day trading: borrow stocks to sell and buy back on the same day. Be aware of additional interest costs, borrowing fees, and high costs when securities are unavailable.

Derivatives Day Trading

Executing futures and options contracts within the trading day, including stock index futures, single stock futures, options, etc. Many short-term traders use Taiwan index futures for day trading to reduce costs.

Algorithmic and High-Frequency Day Trading

Using algorithms to automatically identify buy and sell points, with low costs but high technical requirements, difficult for retail investors to operate.

Comparison of Day Trading Rules: Taiwan vs. US

Cost Estimation of Actual Day Trading

Taiwan Example

Suppose buying 100 lots of TSMC (100,000 shares) at NT$600:

• Transaction amount = NT$600 × 100,000 = NT$6 billion
• Broker fee (approx. 0.04275%) ≈ NT$6 billion × 0.04275% ≈ NT$25,650
• Securities transaction tax (halved for day trading) ≈ NT$6 billion × 0.075% = NT$45,000
• Total costs exceed NT$70,000

US Example

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

• Transaction amount = $1,000,000
• Broker fee = $0 (most are commission-free)
• SEC/FINRA fees ≈ $0.145
• Total costs less than $1, but consider bid-ask spread, slippage, and borrowing interest.

This shows that Taiwan’s main cost for day trading is the transaction tax, while in the US, costs are mainly from bid-ask spread and slippage.

Three Practical Steps for Day Trading

Step 1: Stock Selection — Find “Popular Stocks”

Not all stocks are suitable for day trading. Focus on stocks with high liquidity and volatility. Key indicators include:

• News: Positive or negative news can amplify intraday fluctuations.
• Research Reports: Institutional reports may influence buying or selling.
• Volume and Volatility Data: Check trading volume rankings, turnover rates, volatility rankings, and whether trading volume suddenly exceeds 150% of the average.

Step 2: Determine Trading Direction — Long or Short

Important considerations:

• 5-minute K-line charts: Focus on 5-minute charts rather than daily charts.
• Previous high and low points: Serve as support and resistance levels.
• Opening price: Often sets the tone for the day.
• Market sentiment: If the overall market is weak, even strong stocks should be cautious; if the market is strong but individual stocks are weak, prepare to react.

For long positions, consider “trend-following” or “buying on dips at support”; for short positions, look for a bearish market environment.

Step 3: Strict Discipline — Stop-loss, Take-profit, Capital Management

The most critical principles:

• Timely profit-taking and stop-loss: Set take-profit at around 5%, stop-loss at 2–3%. Avoid holding until near market close, as it risks unfilled orders or sudden drops.
• Capital management: Trade within your means; keep sufficient funds to handle volatility. Do not use full leverage.
• Mindset management: Be decisive in entering and exiting trades; learn to cut losses and take profits promptly, avoiding greed and overtrading.

Hot Stocks for Taiwan and US Day Trading in 2025

High-Volume Taiwan Stocks

High-Volume US Stocks

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

Core Insights on Day Trading

Day trading is neither a guaranteed profit tool nor a get-rich-quick shortcut. It is a trading approach that demands high professionalism, discipline, and psychological resilience.

Taiwan’s day trading advantages include avoiding overnight international fluctuations and improving capital turnover, but disadvantages involve transaction tax costs and high leverage risks. US day trading benefits from T+0 settlement and lower costs but faces PDT restrictions and intraday decision pressures.

Regardless of choosing Taiwan or US markets, investors must recognize the risks, establish discipline, and manage their mindset. It is recommended to start with small capital to familiarize oneself with market dynamics and personal style. Only after gaining experience should larger positions be considered. Otherwise, day trading can easily become a “quick money” illusion, ultimately eroding capital.