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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
 Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

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Day trading definition

What is day trading?

Day trading is a trading strategy that involves opening and closing positions within the same day. Day traders tend to have no positions held overnight, opting instead to close their positions each evening, and reopen positions the following day. Day trading is a short-term strategy that intends to profit from small, intraday fluctuations in price, instead of longer-term market movements.

The meaning of day trading is in direct contrast to traditional investing techniques of buying low, holding, and then selling high. Day traders therefore have to think differently from investors, focusing on an asset’s price action rather than its long-term potential. This is why day trading strategies are usually based on vast amounts of technical analysis, and require the trader to remain up to date with breaking news that might cause market fluctuations.

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Pros and cons of day trading

Pros of day trading

Day traders can speculate on a variety of markets, including stocks, forex, commodities and futures. Shares are particularly popular, because closing positions at the end of each trading day removes the risk of markets gapping overnight.

In the past, day trading was only carried out by large investment firms. However, the rise of trading technology and increased prominence of margin trading – which amplifies both profits and losses – has made day trading more popular in recent years. Derivative products such as CFDs and spread bets enable day traders to capitalise on markets that are making negative price moves as well as positive ones.

Cons of day trading

Day trading is not for the part-time trader. It requires focus and dedication, as it involves making fast decisions and executing a large number of trades in a single day. Day traders don’t necessarily need to trade all day, but do need to remain vigilant and stay ahead of the markets.

Day traders can be limited by the costs involved. For example, if you buy and sell shares you will pay a commission, and any short-term capital gains – profit made on assets held for less than a year – will be subjected to the same tax rate as your income. This is why some day traders prefer to use spread bets, which are not subjected to the same commission structure because they are charged via the spread, and there is no capital gains tax on your profits.*

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* Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.

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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money. 

Professional clients trading spread bets and CFDs can lose more than they deposit.

Options and futures are complex instruments which come with a high risk of losing money rapidly due to leverage. They’re not suitable for most investors. Before you invest, you should consider whether you understand how options and futures work, the risks of trading these instruments and whether you can afford to lose more than your original investment.

Trading stocks and shares ‘on margin’ within a US options and futures account – meaning that you only finance part of the cost of acquiring a position in a security – carries additional risks over buying securities on a fully funded basis and may result in losses exceeding your original investment. Trading on margin will also result in additional costs to you as the investor and any securities purchased using margin may be held as collateral by the lender, restricting both your rights as shareholder, and your ability to use the securities until the margin trade is closed. You should familiarise yourself with these risks before trading on margin.

The value of shares, ETFs and other ETPs bought through a share dealing account, a US options and futures account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results. Some ETPs carry additional risks depending on how they’re structured, investors should ensure they familiarise themselves with the differences before investing.

Share dealing and IG Smart Portfolio accounts provided by IG Trading and Investments Ltd, CFD accounts and US options and futures accounts are provided by IG Markets Ltd, spread betting provided by IG Index Ltd.   

IG is a trading name of IG Trading and Investments Ltd (a company registered in England and Wales under number 11628764), IG Markets Ltd (a company registered in England and Wales under number 04008957) and IG Index Ltd (a company registered in England and Wales under number 01190902). Registered address at Cannon Bridge House, 25 Dowgate Hill, London EC4R 2YA. IG Markets Ltd (Register number 195355), IG Trading and Investments Ltd (Register Number 944492) and IG Index Ltd (Register number 114059) are authorised and regulated by the Financial Conduct Authority.   

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