Today’s Trading, Next-Day Settlement: Understanding Spot Stock Day Trading and the T+0 Trading System in Taiwan Stocks

What is Day Trading?

Day trading refers to the practice where investors buy and sell securities within the same trading day, commonly known as “intraday trading” or “T+0 trading.” Unlike the traditional T+2 settlement system, day trading allows traders to buy stocks today and sell them on the same day, profiting from price differences.

The Taiwan stock market originally implemented a T+2 system (settlement occurs two days after the trade), but since the introduction of cash intraday trading in 2014, day trading accounts for nearly 40% of trading volume in Taiwan stocks, with participant numbers increasing year by year. Many investors favor day trading mainly to avoid overnight holding risks and to quickly profit from intraday price fluctuations.

How Cash Day Trading Works

Through the margin trading and short selling mechanisms provided by brokers, investors can achieve T+0 trading within the existing T+2 framework. For example, TSMC (TSM):

Suppose you buy 1 lot of TSMC shares at 9:15 AM and sell the same lot at 2:30 PM. After the transaction, the investor has completed a buy and sell within the same day. Technically, the margin amount and short sale quantity offset each other after the trades, but the broker charges additional fees, and the investor successfully completes a day trade.

This model benefits brokers by increasing commission income; for traders, it embodies the so-called “no-capital day trading” concept—since the funds are settled within the same day.

Core Differences Between Cash Day Trading and Margin Short Selling Day Trading

Cash Day Trading

Operation Method:

• Bullish: Buy shares today → Sell shares today
• Bearish: Sell shares today → Buy shares today

Account Opening Requirements:

1. Open an account with a broker for at least 3 months (not limited to a single broker)
2. Have completed at least 10 trades in the past year
3. Sign risk disclosure and day trading agreement

Trading Costs:

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

The main feature of cash day trading is its straightforward operation, requiring only the use of personal funds without borrowing money or stocks from the broker.

Margin Short Selling Day Trading

Operation Method:

• Bullish: Margin buy today → Short sell
• Bearish: Short sell today → Margin buy

Margin trading involves borrowing money from the broker; short selling involves borrowing stocks from the broker. Through this lending mechanism, investors can trade larger amounts with less capital.

Account Opening Requirements:

1. Open an account with a broker for at least 3 months (not limited to a single broker)
2. Have completed at least 10 trades in the past year
3. Have a trading volume exceeding NT$250,000 in the past year
4. Need to open a credit account

Trading Costs:

• Stamp duty: 0.3%
• Transaction fee (buy/sell): 0.1425%
• Average borrowing interest rate: 0.08%

Compared to cash day trading, margin trading involves higher taxes and fees but offers greater leverage.

Pros and Cons of Cash Day Trading

Advantages

Timely Closing and Risk Management Investors can settle and close positions within the day, avoiding overnight risks. If a judgment is wrong, they can sell immediately, preventing gaps or major negative news from impacting holdings overnight.

Lower Entry Barriers and Costs Cash day trading can be viewed as “self-funded trading,” with funds settled within the same day. Compared to long-term investors, day traders do not bear multi-day financing costs.

Avoid Overnight Risks Overnight risk exists in the stock market—stocks that hit the daily limit-up today might open lower the next day. Day trading can completely avoid such risks, especially in volatile markets.

Risks and Drawbacks

Leverage Risks and Insufficient Capital Many traders are attracted by the concept of “no-capital day trading” but overlook the underlying financial leverage risks. Those lacking sufficient funds often have the weakest risk tolerance; if investments fail or defaults occur, they may face substantial debts.

Over-Leverage and Emotional Trading Investors tend to overuse leverage beyond their risk capacity, leading to delayed stop-loss when wrong, or premature profit-taking under leverage pressure when correct. This pattern often results in large losses and minimal gains.

Cost Erosion of Returns Short-term trading costs—fees, taxes, and interest—can accumulate to exceed profits. Without careful cost calculation, traders may end up just “earning the spread” as middlemen.

Time and Effort Consumption Day trading requires monitoring the market all day, paying close attention to individual stocks, market movements, chips (ownership) changes, and news. Even strong stocks may open high and drift lower or vice versa, demanding much more effort than swing trading.

Other Financial Instruments Suitable for Same-Day Trading

Taiwan’s capital market not only allows day trading of stocks but also offers various derivatives that inherently support T+0 trading. Unlike cash day trading, which relies on broker margin, these instruments are designed for same-day buy-sell operations, with different cost structures.

Futures Trading

Futures originated from agricultural product delivery and evolved into hedging and speculative tools. In Taiwan, 96% of futures market participants are speculators. Futures contracts are agreements between buyers and sellers to trade a specified quantity of underlying assets at a set price at a specific time.

Core Features: Futures inherently operate on T+0, allowing same-day trading. The key features are leverage and two-way trading—both long and short positions. Traders do not own the underlying asset but are required to settle at expiration, regardless of price.

Account Opening Requirements: Usually, a margin deposit of around NT$100,000+ is needed to trade futures.

Trading Costs:

• Transaction tax: 0.02% of NT$100,000
• Various fees: approximately NT$30 (varies by underlying)

Options Trading

Options are derivatives based on futures, representing contracts where the holder has the right—but not the obligation—to buy or sell the underlying at a specified price within a certain period. Traders can choose to exercise or abandon the right. Options can be traded on exchanges or OTC, and the holder does not own the underlying.

Difference from Futures: Options contracts are optional; the exercise decision is at the buyer’s discretion, whereas futures are mandatory to settle at expiration.

Core Features: Options inherently operate on T+0, allowing same-day trading.

Account Opening Requirements: Usually, a small premium (a few thousand NT$) is sufficient to participate.

Trading Costs:

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

Contracts for Difference (CFD)

CFD is a financial derivative traded OTC. Traders sign an agreement with a broker, paying a margin, and profit from the price difference of the underlying asset. CFDs do not involve ownership of the underlying asset nor have an expiration date, allowing theoretically unlimited holding periods.

Wide Trading Range: CFDs can be traded on forex, precious metals, stock indices, individual stocks, energy commodities, and even cryptocurrencies.

Core Features: CFDs operate on T+0, allowing same-day buy-sell.

Account Opening Requirements: Open online with minimal barriers (ranging from tens to hundreds of USD).

Trading Costs: Mainly through spreads (difference between buy and sell prices).

Comparison Table of Same-Day Trading Methods

Practical Operation Process for Cash Day Trading

The logic of intraday trading is relatively straightforward:

Step 1: Determine Market Direction Assess whether the target stock is likely to rise or fall in the short term.

Step 2: Choose Trading Instruments Decide whether to use cash day trading, margin short selling, or other derivatives.

Step 3: Place Orders

• Bullish: Click buy, close position within the day
• Bearish: Click sell, close position within the day

Step 4: Set Risk Controls Always set stop-loss and take-profit levels to prevent losses beyond your risk appetite. Due to leverage, risk management is especially critical.

Step 5: Close Positions Same Day Ensure all trades are settled before the market closes to avoid overnight holdings.

Frequently Asked Questions

Q1. Can penny stocks be day traded?

No. Penny stocks are not available for margin trading either during or after trading hours. Penny stock investors can only sell the next day at the earliest.

Q2. Which stocks in Taiwan are suitable for day trading?

Currently, about 200 stocks are suitable for day trading, including Taiwan 50 index components, Mid-Cap 100 index components, and OTC Taiwan Top 50 index stocks. Additionally, derivatives like futures, options, and CFDs cover most listed companies and US stocks.

Q3. When is the best time for day trading?

Day trading is usually done within short time frames, especially during active and volatile periods. The opening hours (9:15-10:00), morning session (10:00-11:30), afternoon opening (13:30-14:30), and closing hours (14:00-15:00) tend to have the most movement. Major news releases or economic data announcements also create trading opportunities.

Is Cash Day Trading Suitable for You?

Day trading is a short-term investment approach relying on market volatility for quick profits or avoiding overnight positions. However, it is not suitable for everyone.

Suitable for:

• Those with ample idle funds, not relying on leverage
• Good risk management discipline
• Able to monitor markets all day
• Strong risk tolerance, capable of handling single-day losses

Not suitable for:

• Tight funds needing leverage to trade
• Lack of market knowledge or technical skills
• Inability to watch markets continuously
• Emotional traders unable to maintain discipline

While same-day settlement requires relatively low initial costs, it demands high time commitment, mental resilience, and risk control. Mistakes or poor risk management can lead to significant losses or even capital shortfalls and default risks. Before participating, thoroughly assess your knowledge, financial situation, and psychological readiness.