Taiwan cash day trading: rules, costs and backtests
Cash day trading is buying and selling the same Taiwan stock on the same day in a cash account, settling only the net difference. Its round-trip cost is often several ticks, so a day-trade rule only deserves trust when its average trade clearly beats that cost in a realistic intraday test.
By Soren Huang · Published · updated · Editorial policy
Contents
What does 現股當沖 mean?
現股當沖 (cash day trading) means buying and selling the same quantity of the same Taiwan stock on the same trading day in a cash account, so only the price difference, fees and tax are settled two days later. It needs no margin account, pays a reduced transaction tax under a time-limited law, and costs decide whether a rule survives testing.
Cash day trading is a trade that opens and closes inside one session, using a normal securities account instead of borrowed money or borrowed shares. Traders often shorten it to 現沖. Think of it as a bar tab that is closed the same evening: you never pay for each drink separately, only the final bill.
There are two directions:
- Buy first, sell later (先買後賣): you buy shares in the morning and sell the same number before the close.
- Sell first, buy back later (先賣後買): you sell shares you do not hold and buy them back the same day. The eligibility conditions for this direction are stricter.
To day trade, you sign a day-trading agreement with your broker and meet the account-history conditions in the exchange rules. The broker also sets a trading limit for your account. Only matched quantities count as a day trade. If you buy 3 lots and sell 2, the third lot is a normal purchase that you pay for in full at settlement. One lot (張) is one thousand shares.
Whether a day-trade rule is worth trading comes down to one comparison: the average trade against the round-trip cost. The win rate and expectancy calculator turns a win rate and an average win and loss into that average trade.
How is cash day trading different from margin day trading?
Cash day trading needs only a normal account, while margin day trading (資券當沖) needs a credit account and adds the rules of borrowing money and borrowing shares. Margin day trading is a same-day trade that opens with a margin purchase (融資, buying partly with borrowed money) or a short sale (融券, selling borrowed shares) and offsets the two in one session.
| Question | Cash day trade (現股當沖) | Margin day trade (資券當沖) |
|---|---|---|
| Account needed | Normal securities account plus a day-trading agreement | Credit account (信用交易帳戶), which has its own opening conditions |
| What is borrowed | Nothing; the legs offset each other | Money on the long leg, shares on the short leg |
| Extra costs | Commission and transaction tax | Commission, transaction tax and a short-sale fee on the short leg |
| Which stocks | Stocks on the exchange's day-trade list | Stocks eligible for margin trading; short sales can be halted, for example around shareholder meetings |
| If you cannot close by the end of the day | Buy first: you pay the full amount at settlement. Sell first: the missing shares must be borrowed at extra cost | You keep a margin or short position and pay its interest or fees |
Day trading futures is a third method with different margin and tax rules. Our guide to 當沖 in futures and how to test it after costs covers that method.
Which rules change, and where do you check them?
The day-trade tax discount and the eligibility lists both change over time, so check them before you trade and use the values that applied on each date when you backtest.
- Transaction tax. The normal securities transaction tax on stocks is 0.3% of the sale value, paid by the seller. Article 2-1 of the Securities Transaction Tax Act sets a reduced 0.15% rate for qualifying same-day trades. The reduced rate is time-limited and has been extended several times, so check its current end date. It has also not always existed. Day trades made before it began paid the normal rate.
- Which stocks qualify. The exchange publishes which securities can be day traded, and the list changes. Stocks under disposition measures (處置股) can be matched in periodic auctions and can require prepayment. That changes how a day trade works on those days.
- Who qualifies. Account-age and trading-history conditions sit in the exchange rules, and your broker applies them.
- Which method gets the discount. The reduced rate is defined for specific same-day trades. Confirm with your broker or the law which of your trades qualify. Use the normal rate in a test unless you have confirmed this.
Exchanges and the government can change fees, tax rates, tick sizes and trading hours. The Taiwan Stock Exchange website and the published text of the Securities Transaction Tax Act are the places to confirm the current values.
How much does a round trip cost: fees, tax and slippage?
A day-trade round trip pays commission twice, tax once and slippage twice, and together these often add up to several ticks. Slippage is the difference between the price your rule assumes and the price you actually get. A day-trade rule's equity, drawdown and individual trades appear in the performance report of AlphaPrime (Valynox), so each result can be read against two commissions, one tax and two slippages.
- Commission: at most 0.1425% of the trade value on each side. Many brokers discount it, sometimes as a refund paid later. Use the rate you really end up paying. If your broker charges a minimum fee per order, small orders pay a higher percentage.
- Tax: 0.15% of the sale value for a qualifying day trade, charged once, on the selling leg.
- Slippage: count it in ticks. A tick is the smallest price step a stock can move, and its size depends on the price.
| Stock price (NT$) | Tick size (NT$) | One tick at the lowest price in the band |
|---|---|---|
| Under 10 | 0.01 | — |
| 10 to under 50 | 0.05 | 0.5% |
| 50 to under 100 | 0.1 | 0.2% |
| 100 to under 500 | 0.5 | 0.5% |
| 500 to under one thousand | 1 | 0.2% |
| One thousand and above | 5 | 0.5% |
The last column shows why the price level matters. A stock just above NT$100 moves in steps of about 0.5%, so one tick of slippage costs far more there than on a stock just below NT$100.
Hypothetical example
You day trade one lot of a NT$80 stock, so each leg is worth about NT$80,000 and one tick (NT$0.1) is worth NT$100 per lot. Your broker's effective commission is 0.0855% per side, which is 60% of the 0.1425% cap. You assume one tick of slippage on each side.
| Cost item | NT$ per round trip |
|---|---|
| Commission, both sides (2 × 68.4) | 137 |
| Transaction tax, 0.15% of NT$80,000 | 120 |
| Slippage, one tick each side | 200 |
| Total at the reduced tax | 457 |
| Total if the normal 0.3% tax applies | 577 |
Suppose a rule shows a gross average trade of NT$600 per lot. It keeps NT$143 after costs at the reduced tax and only NT$23 at the normal tax. The NT$457 cost is about 0.57% of the trade value, or more than four ticks.
For more on modelling commission and slippage per round trip, see trading costs in backtests and the average trade.
How do you test a day-trade rule with intraday data?
A day-trade test is realistic only when it uses intraday bars, follows the real session, forces a flat exit before the close and charges every cost. The regular TWSE session runs from 09:00 to 13:30. Orders are accepted from 08:30, and the session opens with a call auction. The last five minutes, 13:25 to 13:30, are a closing call auction. A call auction is a matching method that collects orders and fills them all at one price.
- Use intraday bars that match the session. One-minute or five-minute bars from 09:00 to 13:30 are typical. Use raw prices, not dividend-adjusted prices, because costs and ticks depend on the real price.
- Decide at the bar close and fill on the next bar. Next-bar execution means a signal formed at a bar's close is filled at the next bar's price. That is a price you could actually have traded at.
- Force a flat exit every day. Close any open position on the last continuous-trading bar before 13:25, or fill it at the closing auction price. If a test lets positions run overnight, it is no longer testing a day trade.
- Charge costs in money per trade. Charge commission on both legs, tax on the sale value, and slippage in ticks for the stock's price band.
- Handle limit-locked days. Taiwan stocks have a daily price limit of 10% up or down. When a stock sits at the limit, assume your exit may not fill.
- Use a point-in-time stock list. Include stocks that were later delisted. Use the day-trade eligibility and disposition status that applied on each date.
- Check data that the rule never saw. Scanning many stocks and rules makes the best result look better than it is. Sullivan, Timmermann and White (1999) showed that judging the best of many technical rules without counting all the rules tried can make luck look like skill. Walk-forward analysis tests the rule on periods it was not tuned on.
| Check | Good sign | Bad sign |
|---|---|---|
| Net average trade | Positive and several times the cost | Positive before costs, near zero after |
| Double slippage, normal tax | Still positive | Turns negative |
| Where the profit comes from | Spread over many days and stocks | A handful of limit-up days |
| Out-of-sample periods | Similar behavior to the tuning period | Edge disappears |
AlphaPrime applies this discipline to futures bar data, including TAIEX futures. Its backtesting evaluates every candidate with fees, slippage, next-bar execution and trading sessions. For the futures side of Taiwan day trading, see Taiwan futures day-trading eligibility and its backtest impact.
What this means if you use AlphaPrime: enter your real round-trip cost and session times before the first run, so every strategy is ranked on what is left after costs. Then read the average trade and the out-of-sample results before you trade anything.
Frequently asked questions
What does 現股當沖 mean?
現股當沖 means buying and selling the same number of shares of the same Taiwan stock on the same trading day in a normal cash account. The two legs offset each other, so only the net difference, fees and tax are settled two days later. You need a day-trading agreement with your broker first.
How is the 現股當沖 fee calculated?
The broker commission is charged on both the buy and the sell, at up to 0.1425% of each leg's value, minus any discount your broker gives. Add the transaction tax on the selling leg. For a realistic total, also add at least one tick of slippage on each side.
What is the transaction tax on a 現股當沖?
Qualifying same-day trades pay a reduced 0.15% tax on the sale value under Article 2-1 of the Securities Transaction Tax Act, instead of the normal 0.3%. The reduction is time-limited and has been extended several times. Check the current end date and which trades qualify.
What happens if I cannot close a 現股當沖 the same day?
If you bought first and did not sell, the shares stay in your account and you pay the full purchase amount at settlement. If you sold first and did not buy back, the missing shares have to be borrowed, and you pay the extra cost. A later sale of shares held overnight pays the normal tax rate.
What is the difference between 現沖 and 資券當沖?
現沖 uses a normal cash account and borrows nothing. 資券當沖 uses a credit account and offsets a margin purchase against a short sale on the same day. It adds a short-sale fee and depends on the stock being eligible for margin trading and short sales.
References
- Sullivan, R., Timmermann, A., & White, H. (1999). Data-Snooping, Technical Trading Rule Performance, and the Bootstrap. The Journal of Finance, 54(5), 1647–1691.