Is Day Trading Stocks a Viable Strategy?
Day trading has long attracted ambitious individuals hoping to profit from fast-moving financial markets. With the rise of commission-free apps, real-time data, and accessible platforms, day trading stocks in the UK appears more achievable than ever. But is it really a viable strategy—or a costly illusion?
What Is Day Trading?
Day trading involves buying and selling financial instruments—such as stocks or contracts for difference (CFDs)—within the same trading day. Unlike long-term investors, day traders seek to exploit short-term price movements, often holding positions for mere minutes or hours.
In the UK, traders may operate on the London Stock Exchange or international markets, typically through FCA-authorised online brokers. While day trading can technically involve any asset, equities and derivatives like spread bets and CFDs are among the most common vehicles.
How Day Trading Works in the UK
Unlike the United States, the UK does not impose a ‘pattern day trader’ rule that enforces a minimum account balance of $25,000 for frequent trading. This makes the entry barrier lower—at least financially—for would-be traders.
Tax Considerations
Tax treatment varies depending on the instrument:
Spread betting is exempt from capital gains tax (CGT) and income tax, provided it is not your primary source of income (HMRC 2023).
CFDs and share trading are generally subject to CGT once the annual exemption is exceeded (£3,000 as of the 2024/25 tax year).
Stamp duty Reserve Tax of 0.5% applies to purchases of UK shares, but does not apply to spread betting or CFD trades.
Can Day Traders Be Successful?
The short answer: yes, but rarely. Success in day trading is not impossible, but it is extremely difficult and statistically unlikely for most retail traders.
1. High Costs and Execution Risks
Even with commission-free platforms like Freetrade, Trading 212, or eToro, traders face spreads, slippage, and occasional platform outages. Stamp duty and financing costs on leveraged positions further erode returns.
2. Skill and Discipline Required
Day trading demands professional-level skills in technical analysis, economic news interpretation, and market psychology. Consistently successful traders often have years of experience and treat trading as a full-time occupation rather than a side hustle.
3. Psychological Pressure
The emotional toll of day trading cannot be overstated. Fast-paced decisions, frequent losses, and the temptation to ‘revenge trade’ all challenge even the most disciplined individuals. Effective risk management—typically risking no more than 1% of capital per trade—is essential to avoid blowing up a portfolio.
4. What the Data Say
It is important to distinguish between gross (pre-cost) and net (after-cost) performance in day trading. While some traders do experience short-term profits, costs like commissions, spreads, slippage, and taxes often eliminate those gains.
Barber et al. (2014) find that around 20% of active day traders were profitable before costs in a given year, yet fewer than 1% consistently outperformed the market after costs were considered.
A study of Taiwanese traders by Barber et al. (2005) showed that while nearly 40% of day traders had gross profits, more than 80% lost money once trading costs were factored in.
In the UK, the Financial Conduct Authority (FCA 2021) find that 82% of retail CFD account holders lost money overall, but acknowledged that a meaningful fraction showed periods of strong gross performance before leverage and costs took their toll.
Figure 1. The chart compares the profitability of day traders in the US, UK, and Taiwan before and after costs. Data for the US come from Barber et al. (2014), which found that around 20% of day traders were profitable before costs, but fewer than 1% remained profitable after costs. The UK data, estimated from FCA (2021) findings, show that about 18% of day traders are profitable before costs, dropping to just 2% after costs. The Taiwan data, from Barber et al. (2005), reveal that 40% of traders achieved gross profits before costs, but only 15% remained profitable after accounting for trading expenses. The chart highlights the stark difference between initial profitability and the impact of trading costs on sustained success.
These findings suggest that some traders do have skill or favourable short-term outcomes, but very few sustain profitability over the long term. Success tends to concentrate in a small minority of highly disciplined individuals with a repeatable edge.
Who Actually Succeeds?
The minority of successful UK day traders typically share several traits:
Structured discipline and a clear trading plan.
Detailed journaling and performance tracking.
A defined edge, such as a proven strategy or niche knowledge.
Sufficient capital to absorb losses and minimise emotional decision-making.
Some also use algorithmic tools or specialise in high-frequency trading (HFT), which is far beyond the reach of most retail traders.
Conclusion
While the UK offers a more flexible regulatory environment than the US, day trading is still an exceptionally difficult path. A small proportion of individuals do succeed, but most lose money—often quickly and repeatedly.
References
AMF (Autorité des Marchés Financiers). 2021. Retail investor behaviour in volatile markets: Lessons from the COVID-19 crisis. Paris: AMF. https://www.amf-france.org
Barber, Brad M., Yi-Tsung Lee, Yu-Jane Liu, and Terrance Odean. 2005. ‘Do Individual Day Traders Make Money? Evidence from Taiwan.’ NBER Working Paper No. 11762. Cambridge, MA: National Bureau of Economic Research. https://doi.org/10.3386/w11762
Barber, Brad M., Yi-Tsung Lee, Yu-Jane Liu, and Terrance Odean. 2014. ‘Do Day Traders Rationally Learn About Their Ability?’ Journal of Finance 69 (1): 269–306. https://doi.org/10.1111/jofi.12010
FCA (Financial Conduct Authority). 2021. Research Note: Behaviour and Outcomes in the Retail CFD Market. London: FCA. https://www.fca.org.uk/publication/research/research-note-cfd-retail-market.pdf
HM Revenue & Customs (HMRC). 2023. ‘Tax on Spread Betting and CFDs’. GOV.UK. https://www.gov.uk/tax-on-investment-income