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Day Trading in the UK

Written By

Christian Harris

Written By

Christian Harris

Christian is a seasoned journalist with decades of experience. He transitioned from tech journalism to finance to follow his interest in investing. He has been trading stocks, futures, forex, and cryptocurrencies for more than 5 years, becoming an eToro Popular Investor. With hands-on expertise across various assets, he offers valuable trading insights.

» Christian Harris Profile Page

Edited By

James Barra

Edited By

James Barra

James is an investment writer with a background in financial services. As a former management consultant, he has worked on major operational transformation programmes at prominent European banks. James authors, edits and fact-checks content for a series of investing websites.

» James Barra Profile Page

Fact Checked By

Michael MacKenzie

Fact Checked By

Michael MacKenzie

Michael is a writer and editor with over a decade in journalism and publishing. His niche lies in editing and fact-checking content in the financial services sector, with a focus on online brokers and trading platforms. Michael previously reported on politics and economics in the Middle East and edits books for established publishers.

» Michael MacKenzie Profile Page

Updated

Oct 9, 2024

Day trading in the UK has gained popularity as Brits aim to profit from short-term market movements in one of the world’s most dynamic economies. The UK boasts the sixth-largest economy globally, with a Gross Domestic Product (GDP) of over £3 trillion.

The country is also home to one of the most sophisticated financial systems, anchored by the City of London, a global hub for banking, finance, and trading.

Looking to start day trading in the UK? This guide for beginners will get you started.

Quick Introduction

• Short-term trading is overseen by the Financial Conduct Authority (FCA). The FCA is a ‘green tier’ body under DayTrading.com’s Regulation & Trust Rating and is among the most respected financial regulators globally, providing robust investor safeguards.
• The UK’s key stock markets include the London Stock Exchange (LSE), one of the largest and oldest exchanges, and its sub-market, the Alternative Investment Market (AIM), which focuses on smaller, growing companies. Together, they offer a range of trading opportunities.
• If day trading is your primary income source, your profits may be taxed at standard income tax rates (20%, 40%, or 45%), and payable to HM Revenue and Customs (HMRC). However spread betting can alleviate some tax costs for active British traders.

Day Trading Brokers in the UK

What Is Day Trading?

Day trading is the practice of buying and selling financial instruments within the same day. Traders close all positions before the market closes, avoiding overnight risks and associated costs.

Brits can deal in a huge array of local and global markets, including:

• Stocks listed on the LSE, with those featuring high volume and volatility suiting day trading strategies, such as Glencore, Tesco and Vodafone.
• Indices like the FTSE 100, which tracks the performance of the 100 largest UK equities and also acts as a barometer for the wider British economy.
• Currency pairs containing the Great British Pound (GBP), with GBP/USD and EUR/GBP remaining among the most actively traded forex assets globally.
• Commodities such as Brent Crude Oil which comes from the North Sea, gold which acts as a safe-haven asset, and agricultural commodities like wheat which the UK is a significant importer of.

Is Day Trading Legal In The UK?

Day trading is legal in the UK, provided that you adhere to the regulations established by the FCA – one of the world’s most respected and active financial regulators.

The FCA supervises financial markets to maintain market integrity and protect investors from unfair practices. You must follow rules to prevent market manipulation, insider trading, and excessive risk-taking.

FCA-authorised brokers are also required to provide certain protections to safeguard British traders:

How Is Day Trading Taxed In The UK?

The taxation of day trading in the UK depends on how the activity is classified and the nature of your activities.

For many individual traders, day trading profits may be subject to CGT. This tax applies to the profits from buying and selling shares and other investments and is taxed at 10% for basic rate taxpayers and 20% for higher rate taxpayers (beyond the CGT allowance).

However, if day trading is considered a primary source of income rather than a secondary investment activity, HM Revenue and Customs (HMRC) may classify profits as income rather than capital gains.

In this case, they are subject to income tax, which is charged at the standard rates of 20%, 40%, or 45%, depending on the total income level.

Additionally, if you buy UK equities, transactions are further subject to Stamp Duty Reserve Tax (SDRT) at a rate of 0.5%.

There is a notable exception for spread betting, which is tax-free in the UK. Spread betting is classified as gambling rather than trading, so any profits earned from it are not subject to capital gains tax or stamp duty.

To calculate tax liabilities accurately, you must keep detailed records of all transactions, including dates, amounts, and prices.

Given the complexity of UK tax regulations and potential variations in individual circumstances, I recommend seeking advice from a tax professional to ensure compliance and optimize tax efficiency in your day trading activities.

Christian Harris

Author

Getting Started

Starting day trading in the UK can be broken down into three simple steps:

1. Choose a top day platform in the UK. Find a broker with low trading fees, a robust charting platform offering advanced tools and real-time data, authorization from the FCA for a secure experience, and access to local and global markets, such as LSE-listed stocks, FTSE 100 index, and currency pairs like GBP/USD and EUR/GBP if you want to trade forex in the UK. I find demo accounts an excellent way to test-drive brokers before depositing British pounds.
2. Set up your account. You must complete an online application with your personal and financial details. Identity verification is required, so you must submit documents like a government ID and proof of address. Finally, review and accept the broker’s terms and conditions before you can begin trading. Opt for a broker with a GBP account to slash conversion fees and ensure a convenient online trading experience.
3. Deposit funds. After your account is activated, fund it using your preferred payment method, such as a debit card, bank wire transfer, or electronic solution with PayPal, Neteller and Skrill among the most popular deposit options we see on UK trading platforms.

A Day Trade In Action

Let’s consider a scenario in which I day trade the FTSE 100, an index representing the 100 largest companies listed on the LSE by market capitalization.

The FTSE 100 serves as a key indicator of the performance of the UK stock market and includes major firms from various sectors, such as finance, energy, and consumer goods.

Event Background

The Bank of England (BoE) cut its base interest rate by a quarter of a percentage point to 5%. At the time, this marked the first rate reduction in 4 years after a closely divided vote among policymakers. The previous rate had stood at a 16-year high.

Interest rate changes often indicate the central bank’s view of the economy. A rate hike may signal confidence in economic growth, while a rate cut may indicate concerns about economic slowdown.

These perceptions can influence investor sentiment and market movements.

Trade Entry & Exit

I focused on the FTSE 100 as it typically reacts quickly to changes in UK interest rates.

Following the rate cut announcement, the FTSE 100 experienced a sharp downward move, breaking through a key short-term support level.

Based on this bearish price action, I placed a short (sell) trade, expecting the rate cut to continue driving negative sentiment for the rest of the UK trading session. I also put a stop loss above the previous day’s high to manage risk.

After entering the trade, I closely tracked the FTSE 100’s price action. The index continued to drop, driven by scepticism about the economic stimulus from the rate cut.

Given the strong market reaction and the potential for the index to reverse, I decided to exit my position just above a support level to lock in my profits before any possible reversal or pullback occurred.

This day trade highlighted the impact a major economic announcement, such as an interest rate cut, can have on the FTSE 100.

By leveraging technical indicators and analyzing the market’s response to the news, I made strategic trading decisions and capitalized on the subsequent price movements.

Christian Harris

Author

Bottom Line

The UK offers favourable tax conditions for active traders, particularly with its CTG allowances and the potential benefits of tax-free spread betting.

It also features highly liquid, tightly regulated financial markets overseen by the FCA, providing a secure environment for British traders.

However, day trading remains extremely risky. You must contend with significant volatility, the fast pace of frequent transactions, and the potential for significant financial losses. Managing risk and only investing what you can afford to lose is essential.

To get started, see DayTrading.com’s selection of the best brokers for day trading in the UK.

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