Volatility in global markets in recent times has been attracting day and short term traders into the market like moths to a flame, the experts suggest. But be warned: this is not an investment approach for the faint-hearted, and you can get burned.
About the same time as the share market and property market began to wobble, TD Waterhouse started to see an upswing in trading, according to the firm’s investor centre representative James Daly.
“From that point we’ve seen a steady increase in business. A lot of that has been concentrated in day trading or short term trading,” Daly says.
He suggests that on an average day it now does between two and three times as many trades as it did a couple of years ago.
The Share Centre investment adviser Nick Raynor says it too has seen an increase in those who “think they can day trade”, particularly since bank share prices started to head south 18 months ago. Professional day traders remain a rare commodity, he adds.
The Share Centre has seen an increasing number of people bringing their money across from cash Isas to put in into the market in the hope of getting a better return.
Raynor suggests many traders have been lured by the hope of making easy money. While some have done so, others have been burnt on the way down.
“When we’re in a recession like we are, people see it as an easy way of making an extra income – or attempting to.”
Barclays Stockbrokers head of product Paul Inkster describes clients as “responding well” throughout July to the recent market rally, with an increasing proportion of trades being sales.
“The average daily buy/sell split for July is 53/47 versus an average for H1of 60/40. In the second and third week of July we also saw average daily sales outpace purchases for only the second time this year,” he says.
Day trading is effectively buying and selling a financial instrument in the same day.
“It could be shares, some type of derivative, currency, or commodity,” Clayden Associates director Daniel Clayden says.
It can also cover things like spread betting, contracts for difference (CFDs) and exchange traded funds (ETFs).
Inkster says equities account for around half of CFD or financial spread trading (FST) week on week and are the most heavily traded. However, he says indices account for around a quarter and it is seeing increased activity in the use of foreign exchange and Sipps.
Clayden says the major benefit of day trading is the opportunity to take advantage of fluctuations within volatile markets to potentially make a profit in a short space of time.
“However, the flip side of investing in volatile markets, or investing in complex financial instruments, is that the potential risks are greater too,” he says.
Daly says day trading can be good for those who have a short period off work or are in between jobs and believes it is important for an investor to determine whether they are a long or short term trader.
“I would say that if you are planning to hold shares for less than a month, you can consider yourself a short term trader,” he says.
Hargreaves Lansdown investment manager Ben Yearsley suggests day trading is not as easy as it was a year ago and that short term trading is likely to be more the flavour of the day.
“It’s probably actually harder to day trade now because you haven’t got such rapid movements in prices as you had last year – down, up and all over the place. It might have been day trading last year, (but) it’s moved on to short term rather than day trading, punting on certain stocks like the banks,” he says.
Barclays’ Inkster says banks continue to dominate trading activity, although there has also been good interest in mining stocks such as Xstrata and Rio Tinto recently.
“Utilities are also popular, notably Centrica and United Utilities, as well as a natural focus on companies as they report their earnings,” he says.
Daly and Raynor add insurance companies to the list. Raynor says: “The likes of Aviva, Prudential and Legal & General – we’re seeing a tremendous amount of trading in those. But we’re also seeing a lot of selling lately because there are a lot of concerns over dividends.”
He adds real estate securities as well, saying that the likes of Land Securities and British Land have also been looking undervalued. While Raynor agrees banks are popular, he fears that with the amount of Government ownership involved currently – such as with Lloyds TSB and Royal Bank of Scotland – this is not necessarily the best place for day traders to be.
There is also a lot of interest in commodities – traded via Exchange Traded Commodities (ETCs) – but not just the likes of silver and gold, but agriculture as well. “We notice corn and cotton, those sorts of commodities, have also picked up so investors are spreading their net,” Raynor says,
The research needed to day or short term trade does not need to be as rigorous as for longer term trades, but is still important. Day or short term traders need to make sure they are up to date with the financial events coming up during the week as well as doing more general research around their trading instrument of choice. Daly suggests short term traders generally focus on more technical analysis.
What day trading does require is the trader’s undivided attention.
“You can’t put on a position intra-day on a leveraged position and then just go away for two or three hours and then come back. You need to keep an eye on these things,” Daly says.
He says day or short term trading requires larger amounts of cash to get started than long term trades, suggesting around £5,000 is needed. “It’s a larger amount than if you were looking to buy and hold, which you can do with £50 a month,” Daly says.
He lists cost as one of the big issues day traders need to bear in mind.
Daly says: “If you’re paying stamp duty then your shares have to move by more than 0.5%, completely ignoring the spread and commission, before you can make any money at all.”
As a result short term traders can be better off using instruments such as CFDs, spread bets or trading international markets to ensure they are not paying stamp duty, he says.
Yearsley believes day trading is a risky strategy and that traders need to be very disciplined about having their stop losses in place – and not deviating from them.
Raynor adds that trading is all a matter of timing and warns that avoiding the “herd mentality” and greed is essential, although often difficult.
“People have made maybe 25, 50 sometimes 100 per cent – brilliant, fine. Take that money out of the market and sit on it. If the market does keep on going up, there’ll be other opportunities. But the momentum might stop and it might fall back,” Raynor says.
He suggests day traders tend to look to make smaller margins, of 3 or 4 per cent a day.
“Over a week those small percentages add up to 10-15 per cent, which they would be happy with,” he says.
Meanwhile, the tax treatment of gains all depends upon the underlying investment, Clayden says.
“So trading in equities would give rise to a chargeable gain liable to capital gains tax.”
He adds that the popularity of spread betting is largely down to the fact that profits are technically not a gain and therefore not liable to tax.
“But it is really just gambling,” he says.
For Raynor, there is one more vital ingredient in the recipe for a successful day trader and that is a great big dollop of luck.
Focus: Day by day – how to minimise short term investing risk
Darius McDermott, managing director, Chelsea Financial Services
With the internet and low trading costs smoothing the way day trading has never been easier, according to Chelsea Financial Services managing director Darius McDermott. But do not assume that means it actually is easy, he warns.
“With the advent of the internet there is a mound of information on economies, commodities, stocks, that is much more accessible for a day trader to do the appropriate research,” he says.
“You definitely need the time, (but) there is the information out there for people to do the research. Day trading in the early 1990s would have been much more difficult without access to the internet.”
He adds that it has also probably never been as cheap to trade shares and exchange traded funds since the advent of online share traders.
“They’re all positives, but clearly, like anything else, it carries a health warning in that you can lose money as well as you can make money.”
He adds that day trading is not something that can be viewed as a hobby, but needs to be considered a job. Day traders also need to be getting at least 60 per cent of their idea trades right, he says.
“You need, on aggregate, to be right at least 60 per cent of the time because you’ve got to have 40 per cent of the time when you’re losing money and you have to take into account the costs.”
McDermott says day trading is “far from easy. I’m a reasonably experienced financial person and I know bits and pieces about global markets and currencies and all sorts of things. But I wouldn’t think I was competent to do day trading as a job without really having the time to do the research.”
Volatility in global markets in recent times has been attracting day and short term traders into the market like moths to a flame, the experts suggest. But be warned: this is not an investment approach for the faint-hearted, and you can get burned.
About the same time as the share market and property market began to wobble, TD Waterhouse started to see an upswing in trading, according to the firm’s investor centre representative James Daly.
“From that point we’ve seen a steady increase in business. A lot of that has been concentrated in day trading or short term trading,” Daly says.
He suggests that on an average day it now does between two and three times as many trades as it did a couple of years ago.
The Share Centre investment adviser Nick Raynor says it too has seen an increase in those who “think they can day trade”, particularly since bank share prices started to head south 18 months ago. Professional day traders remain a rare commodity, he adds.
The Share Centre has seen an increasing number of people bringing their money across from cash Isas to put in into the market in the hope of getting a better return.
Raynor suggests many traders have been lured by the hope of making easy money. While some have done so, others have been burnt on the way down.
“When we’re in a recession like we are, people see it as an easy way of making an extra income – or attempting to.”
Barclays Stockbrokers head of product Paul Inkster describes clients as “responding well” throughout July to the recent market rally, with an increasing proportion of trades being sales.
“The average daily buy/sell split for July is 53/47 versus an average for H1of 60/40. In the second and third week of July we also saw average daily sales outpace purchases for only the second time this year,” he says.
Day trading is effectively buying and selling a financial instrument in the same day.
“It could be shares, some type of derivative, currency, or commodity,” Clayden Associates director Daniel Clayden says.
It can also cover things like spread betting, contracts for difference (CFDs) and exchange traded funds (ETFs).
Inkster says equities account for around half of CFD or financial spread trading (FST) week on week and are the most heavily traded. However, he says indices account for around a quarter and it is seeing increased activity in the use of foreign exchange and Sipps.
Clayden says the major benefit of day trading is the opportunity to take advantage of fluctuations within volatile markets to potentially make a profit in a short space of time.
“However, the flip side of investing in volatile markets, or investing in complex financial instruments, is that the potential risks are greater too,” he says.
Daly says day trading can be good for those who have a short period off work or are in between jobs and believes it is important for an investor to determine whether they are a long or short term trader.
“I would say that if you are planning to hold shares for less than a month, you can consider yourself a short term trader,” he says.
Hargreaves Lansdown investment manager Ben Yearsley suggests day trading is not as easy as it was a year ago and that short term trading is likely to be more the flavour of the day.
“It’s probably actually harder to day trade now because you haven’t got such rapid movements in prices as you had last year – down, up and all over the place. It might have been day trading last year, (but) it’s moved on to short term rather than day trading, punting on certain stocks like the banks,” he says.
Barclays’ Inkster says banks continue to dominate trading activity, although there has also been good interest in mining stocks such as Xstrata and Rio Tinto recently.
“Utilities are also popular, notably Centrica and United Utilities, as well as a natural focus on companies as they report their earnings,” he says.
Daly and Raynor add insurance companies to the list. Raynor says: “The likes of Aviva, Prudential and Legal & General – we’re seeing a tremendous amount of trading in those. But we’re also seeing a lot of selling lately because there are a lot of concerns over dividends.”
He adds real estate securities as well, saying that the likes of Land Securities and British Land have also been looking undervalued. While Raynor agrees banks are popular, he fears that with the amount of Government ownership involved currently – such as with Lloyds TSB and Royal Bank of Scotland – this is not necessarily the best place for day traders to be.
There is also a lot of interest in commodities – traded via Exchange Traded Commodities (ETCs) – but not just the likes of silver and gold, but agriculture as well. “We notice corn and cotton, those sorts of commodities, have also picked up so investors are spreading their net,” Raynor says,
The research needed to day or short term trade does not need to be as rigorous as for longer term trades, but is still important. Day or short term traders need to make sure they are up to date with the financial events coming up during the week as well as doing more general research around their trading instrument of choice. Daly suggests short term traders generally focus on more technical analysis.
What day trading does require is the trader’s undivided attention.
“You can’t put on a position intra-day on a leveraged position and then just go away for two or three hours and then come back. You need to keep an eye on these things,” Daly says.
He says day or short term trading requires larger amounts of cash to get started than long term trades, suggesting around £5,000 is needed. “It’s a larger amount than if you were looking to buy and hold, which you can do with £50 a month,” Daly says.
He lists cost as one of the big issues day traders need to bear in mind.
Daly says: “If you’re paying stamp duty then your shares have to move by more than 0.5%, completely ignoring the spread and commission, before you can make any money at all.”
As a result short term traders can be better off using instruments such as CFDs, spread bets or trading international markets to ensure they are not paying stamp duty, he says.
Yearsley believes day trading is a risky strategy and that traders need to be very disciplined about having their stop losses in place – and not deviating from them.
Raynor adds that trading is all a matter of timing and warns that avoiding the “herd mentality” and greed is essential, although often difficult.
“People have made maybe 25, 50 sometimes 100 per cent – brilliant, fine. Take that money out of the market and sit on it. If the market does keep on going up, there’ll be other opportunities. But the momentum might stop and it might fall back,” Raynor says.
He suggests day traders tend to look to make smaller margins, of 3 or 4 per cent a day.
“Over a week those small percentages add up to 10-15 per cent, which they would be happy with,” he says.
Meanwhile, the tax treatment of gains all depends upon the underlying investment, Clayden says.
“So trading in equities would give rise to a chargeable gain liable to capital gains tax.”
He adds that the popularity of spread betting is largely down to the fact that profits are technically not a gain and therefore not liable to tax.
“But it is really just gambling,” he says.
For Raynor, there is one more vital ingredient in the recipe for a successful day trader and that is a great big dollop of luck.
Focus: Day by day – how to minimise short term investing risk
Darius McDermott, managing director, Chelsea Financial Services
With the internet and low trading costs smoothing the way day trading has never been easier, according to Chelsea Financial Services managing director Darius McDermott. But do not assume that means it actually is easy, he warns.
“With the advent of the internet there is a mound of information on economies, commodities, stocks, that is much more accessible for a day trader to do the appropriate research,” he says.
“You definitely need the time, (but) there is the information out there for people to do the research. Day trading in the early 1990s would have been much more difficult without access to the internet.”
He adds that it has also probably never been as cheap to trade shares and exchange traded funds since the advent of online share traders.
“They’re all positives, but clearly, like anything else, it carries a health warning in that you can lose money as well as you can make money.”
He adds that day trading is not something that can be viewed as a hobby, but needs to be considered a job. Day traders also need to be getting at least 60 per cent of their idea trades right, he says.
“You need, on aggregate, to be right at least 60 per cent of the time because you’ve got to have 40 per cent of the time when you’re losing money and you have to take into account the costs.”
McDermott says day trading is “far from easy. I’m a reasonably experienced financial person and I know bits and pieces about global markets and currencies and all sorts of things. But I wouldn’t think I was competent to do day trading as a job without really having the time to do the research.”
Volatility in global markets in recent times has been attracting day and short term traders into the market like moths to a flame, the experts suggest. But be warned: this is not an investment approach for the faint-hearted, and you can get burned.
About the same time as the share market and property market began to wobble, TD Waterhouse started to see an upswing in trading, according to the firm’s investor centre representative James Daly.
“From that point we’ve seen a steady increase in business. A lot of that has been concentrated in day trading or short term trading,” Daly says.
He suggests that on an average day it now does between two and three times as many trades as it did a couple of years ago.
The Share Centre investment adviser Nick Raynor says it too has seen an increase in those who “think they can day trade”, particularly since bank share prices started to head south 18 months ago. Professional day traders remain a rare commodity, he adds.
The Share Centre has seen an increasing number of people bringing their money across from cash Isas to put in into the market in the hope of getting a better return.
Raynor suggests many traders have been lured by the hope of making easy money. While some have done so, others have been burnt on the way down.
“When we’re in a recession like we are, people see it as an easy way of making an extra income – or attempting to.”
Barclays Stockbrokers head of product Paul Inkster describes clients as “responding well” throughout July to the recent market rally, with an increasing proportion of trades being sales.
“The average daily buy/sell split for July is 53/47 versus an average for H1of 60/40. In the second and third week of July we also saw average daily sales outpace purchases for only the second time this year,” he says.
Day trading is effectively buying and selling a financial instrument in the same day.
“It could be shares, some type of derivative, currency, or commodity,” Clayden Associates director Daniel Clayden says.
It can also cover things like spread betting, contracts for difference (CFDs) and exchange traded funds (ETFs).
Inkster says equities account for around half of CFD or financial spread trading (FST) week on week and are the most heavily traded. However, he says indices account for around a quarter and it is seeing increased activity in the use of foreign exchange and Sipps.
Clayden says the major benefit of day trading is the opportunity to take advantage of fluctuations within volatile markets to potentially make a profit in a short space of time.
“However, the flip side of investing in volatile markets, or investing in complex financial instruments, is that the potential risks are greater too,” he says.
Daly says day trading can be good for those who have a short period off work or are in between jobs and believes it is important for an investor to determine whether they are a long or short term trader.
“I would say that if you are planning to hold shares for less than a month, you can consider yourself a short term trader,” he says.
Hargreaves Lansdown investment manager Ben Yearsley suggests day trading is not as easy as it was a year ago and that short term trading is likely to be more the flavour of the day.
“It’s probably actually harder to day trade now because you haven’t got such rapid movements in prices as you had last year – down, up and all over the place. It might have been day trading last year, (but) it’s moved on to short term rather than day trading, punting on certain stocks like the banks,” he says.
Barclays’ Inkster says banks continue to dominate trading activity, although there has also been good interest in mining stocks such as Xstrata and Rio Tinto recently.
“Utilities are also popular, notably Centrica and United Utilities, as well as a natural focus on companies as they report their earnings,” he says.
Daly and Raynor add insurance companies to the list. Raynor says: “The likes of Aviva, Prudential and Legal & General – we’re seeing a tremendous amount of trading in those. But we’re also seeing a lot of selling lately because there are a lot of concerns over dividends.”
He adds real estate securities as well, saying that the likes of Land Securities and British Land have also been looking undervalued. While Raynor agrees banks are popular, he fears that with the amount of Government ownership involved currently – such as with Lloyds TSB and Royal Bank of Scotland – this is not necessarily the best place for day traders to be.
There is also a lot of interest in commodities – traded via Exchange Traded Commodities (ETCs) – but not just the likes of silver and gold, but agriculture as well. “We notice corn and cotton, those sorts of commodities, have also picked up so investors are spreading their net,” Raynor says,
The research needed to day or short term trade does not need to be as rigorous as for longer term trades, but is still important. Day or short term traders need to make sure they are up to date with the financial events coming up during the week as well as doing more general research around their trading instrument of choice. Daly suggests short term traders generally focus on more technical analysis.
What day trading does require is the trader’s undivided attention.
“You can’t put on a position intra-day on a leveraged position and then just go away for two or three hours and then come back. You need to keep an eye on these things,” Daly says.
He says day or short term trading requires larger amounts of cash to get started than long term trades, suggesting around £5,000 is needed. “It’s a larger amount than if you were looking to buy and hold, which you can do with £50 a month,” Daly says.
He lists cost as one of the big issues day traders need to bear in mind.
Daly says: “If you’re paying stamp duty then your shares have to move by more than 0.5%, completely ignoring the spread and commission, before you can make any money at all.”
As a result short term traders can be better off using instruments such as CFDs, spread bets or trading international markets to ensure they are not paying stamp duty, he says.
Yearsley believes day trading is a risky strategy and that traders need to be very disciplined about having their stop losses in place – and not deviating from them.
Raynor adds that trading is all a matter of timing and warns that avoiding the “herd mentality” and greed is essential, although often difficult.
“People have made maybe 25, 50 sometimes 100 per cent – brilliant, fine. Take that money out of the market and sit on it. If the market does keep on going up, there’ll be other opportunities. But the momentum might stop and it might fall back,” Raynor says.
He suggests day traders tend to look to make smaller margins, of 3 or 4 per cent a day.
“Over a week those small percentages add up to 10-15 per cent, which they would be happy with,” he says.
Meanwhile, the tax treatment of gains all depends upon the underlying investment, Clayden says.
“So trading in equities would give rise to a chargeable gain liable to capital gains tax.”
He adds that the popularity of spread betting is largely down to the fact that profits are technically not a gain and therefore not liable to tax.
“But it is really just gambling,” he says.
For Raynor, there is one more vital ingredient in the recipe for a successful day trader and that is a great big dollop of luck.
Focus: Day by day – how to minimise short term investing risk
Darius McDermott, managing director, Chelsea Financial Services
With the internet and low trading costs smoothing the way day trading has never been easier, according to Chelsea Financial Services managing director Darius McDermott. But do not assume that means it actually is easy, he warns.
“With the advent of the internet there is a mound of information on economies, commodities, stocks, that is much more accessible for a day trader to do the appropriate research,” he says.
“You definitely need the time, (but) there is the information out there for people to do the research. Day trading in the early 1990s would have been much more difficult without access to the internet.”
He adds that it has also probably never been as cheap to trade shares and exchange traded funds since the advent of online share traders.
“They’re all positives, but clearly, like anything else, it carries a health warning in that you can lose money as well as you can make money.”
He adds that day trading is not something that can be viewed as a hobby, but needs to be considered a job. Day traders also need to be getting at least 60 per cent of their idea trades right, he says.
“You need, on aggregate, to be right at least 60 per cent of the time because you’ve got to have 40 per cent of the time when you’re losing money and you have to take into account the costs.”
McDermott says day trading is “far from easy. I’m a reasonably experienced financial person and I know bits and pieces about global markets and currencies and all sorts of things. But I wouldn’t think I was competent to do day trading as a job without really having the time to do the research.”
Volatility in global markets in recent times has been attracting day and short term traders into the market like moths to a flame, the experts suggest. But be warned: this is not an investment approach for the faint-hearted, and you can get burned.
About the same time as the share market and property market began to wobble, TD Waterhouse started to see an upswing in trading, according to the firm’s investor centre representative James Daly.
“From that point we’ve seen a steady increase in business. A lot of that has been concentrated in day trading or short term trading,” Daly says.
He suggests that on an average day it now does between two and three times as many trades as it did a couple of years ago.
The Share Centre investment adviser Nick Raynor says it too has seen an increase in those who “think they can day trade”, particularly since bank share prices started to head south 18 months ago. Professional day traders remain a rare commodity, he adds.
The Share Centre has seen an increasing number of people bringing their money across from cash Isas to put in into the market in the hope of getting a better return.
Raynor suggests many traders have been lured by the hope of making easy money. While some have done so, others have been burnt on the way down.
“When we’re in a recession like we are, people see it as an easy way of making an extra income – or attempting to.”
Barclays Stockbrokers head of product Paul Inkster describes clients as “responding well” throughout July to the recent market rally, with an increasing proportion of trades being sales.
“The average daily buy/sell split for July is 53/47 versus an average for H1of 60/40. In the second and third week of July we also saw average daily sales outpace purchases for only the second time this year,” he says.
Day trading is effectively buying and selling a financial instrument in the same day.
“It could be shares, some type of derivative, currency, or commodity,” Clayden Associates director Daniel Clayden says.
It can also cover things like spread betting, contracts for difference (CFDs) and exchange traded funds (ETFs).
Inkster says equities account for around half of CFD or financial spread trading (FST) week on week and are the most heavily traded. However, he says indices account for around a quarter and it is seeing increased activity in the use of foreign exchange and Sipps.
Clayden says the major benefit of day trading is the opportunity to take advantage of fluctuations within volatile markets to potentially make a profit in a short space of time.
“However, the flip side of investing in volatile markets, or investing in complex financial instruments, is that the potential risks are greater too,” he says.
Daly says day trading can be good for those who have a short period off work or are in between jobs and believes it is important for an investor to determine whether they are a long or short term trader.
“I would say that if you are planning to hold shares for less than a month, you can consider yourself a short term trader,” he says.
Hargreaves Lansdown investment manager Ben Yearsley suggests day trading is not as easy as it was a year ago and that short term trading is likely to be more the flavour of the day.
“It’s probably actually harder to day trade now because you haven’t got such rapid movements in prices as you had last year – down, up and all over the place. It might have been day trading last year, (but) it’s moved on to short term rather than day trading, punting on certain stocks like the banks,” he says.
Barclays’ Inkster says banks continue to dominate trading activity, although there has also been good interest in mining stocks such as Xstrata and Rio Tinto recently.
“Utilities are also popular, notably Centrica and United Utilities, as well as a natural focus on companies as they report their earnings,” he says.
Daly and Raynor add insurance companies to the list. Raynor says: “The likes of Aviva, Prudential and Legal & General – we’re seeing a tremendous amount of trading in those. But we’re also seeing a lot of selling lately because there are a lot of concerns over dividends.”
He adds real estate securities as well, saying that the likes of Land Securities and British Land have also been looking undervalued. While Raynor agrees banks are popular, he fears that with the amount of Government ownership involved currently – such as with Lloyds TSB and Royal Bank of Scotland – this is not necessarily the best place for day traders to be.
There is also a lot of interest in commodities – traded via Exchange Traded Commodities (ETCs) – but not just the likes of silver and gold, but agriculture as well. “We notice corn and cotton, those sorts of commodities, have also picked up so investors are spreading their net,” Raynor says,
The research needed to day or short term trade does not need to be as rigorous as for longer term trades, but is still important. Day or short term traders need to make sure they are up to date with the financial events coming up during the week as well as doing more general research around their trading instrument of choice. Daly suggests short term traders generally focus on more technical analysis.
What day trading does require is the trader’s undivided attention.
“You can’t put on a position intra-day on a leveraged position and then just go away for two or three hours and then come back. You need to keep an eye on these things,” Daly says.
He says day or short term trading requires larger amounts of cash to get started than long term trades, suggesting around £5,000 is needed. “It’s a larger amount than if you were looking to buy and hold, which you can do with £50 a month,” Daly says.
He lists cost as one of the big issues day traders need to bear in mind.
Daly says: “If you’re paying stamp duty then your shares have to move by more than 0.5%, completely ignoring the spread and commission, before you can make any money at all.”
As a result short term traders can be better off using instruments such as CFDs, spread bets or trading international markets to ensure they are not paying stamp duty, he says.
Yearsley believes day trading is a risky strategy and that traders need to be very disciplined about having their stop losses in place – and not deviating from them.
Raynor adds that trading is all a matter of timing and warns that avoiding the “herd mentality” and greed is essential, although often difficult.
“People have made maybe 25, 50 sometimes 100 per cent – brilliant, fine. Take that money out of the market and sit on it. If the market does keep on going up, there’ll be other opportunities. But the momentum might stop and it might fall back,” Raynor says.
He suggests day traders tend to look to make smaller margins, of 3 or 4 per cent a day.
“Over a week those small percentages add up to 10-15 per cent, which they would be happy with,” he says.
Meanwhile, the tax treatment of gains all depends upon the underlying investment, Clayden says.
“So trading in equities would give rise to a chargeable gain liable to capital gains tax.”
He adds that the popularity of spread betting is largely down to the fact that profits are technically not a gain and therefore not liable to tax.
“But it is really just gambling,” he says.
For Raynor, there is one more vital ingredient in the recipe for a successful day trader and that is a great big dollop of luck.
Focus: Day by day – how to minimise short term investing risk
Darius McDermott, managing director, Chelsea Financial Services
With the internet and low trading costs smoothing the way day trading has never been easier, according to Chelsea Financial Services managing director Darius McDermott. But do not assume that means it actually is easy, he warns.
“With the advent of the internet there is a mound of information on economies, commodities, stocks, that is much more accessible for a day trader to do the appropriate research,” he says.
“You definitely need the time, (but) there is the information out there for people to do the research. Day trading in the early 1990s would have been much more difficult without access to the internet.”
He adds that it has also probably never been as cheap to trade shares and exchange traded funds since the advent of online share traders.
“They’re all positives, but clearly, like anything else, it carries a health warning in that you can lose money as well as you can make money.”
He adds that day trading is not something that can be viewed as a hobby, but needs to be considered a job. Day traders also need to be getting at least 60 per cent of their idea trades right, he says.
“You need, on aggregate, to be right at least 60 per cent of the time because you’ve got to have 40 per cent of the time when you’re losing money and you have to take into account the costs.”
McDermott says day trading is “far from easy. I’m a reasonably experienced financial person and I know bits and pieces about global markets and currencies and all sorts of things. But I wouldn’t think I was competent to do day trading as a job without really having the time to do the research.”
