Why is day trading illegal?

day trading

What are the grounds for banning day trading on the stock exchange?

For a long time, there has been a practice in the financial sphere that perplexes many users and often faces legal restrictions - this tactic is day trading. Not all traders and investors know what the reasons are and may often wonder what are the reasons why day trading is considered illegal. It's time to dig deeper into all the intricacies that may be associated with day trading, to find out what is the reason for the illegal status of day trading.

What is the illegality of day trading

There are several good reasons why day trading is subject to legal restrictions and is viewed with caution. Firstly, this type of trading is characterized by high-risk indicators, which in turn can lead to significant losses for a large number of traders in the market.

Also, another reason, why is day trading unacceptable, is the instability of the stock market, due to which the price movement becomes fast and unpredictable, making the market susceptible. At the moment, the situation on the stock exchange can worsen, and the rate will go in the opposite direction from the expectations of traders and investors, leading to fast, risky, and short-term day trades.

Why are there restrictions on day trading

Given the factors due to which day trading is not completely safe and has a high-risk nature, financial regulators impose restrictions on day trading in order to protect investors and thus stabilize and preserve the integrity of the market.

It is worth considering that one of the main reasons for concern is the possibility of market manipulation, which investors and traders love to use in their favor. Despite the bans on day trading, one can often see rate hikes on stock exchanges due to the rapid buying or selling of a large number of shares and assets during one day. Thus, investors artificially influence the prices of tokens, stocks, crypto coins, and other digital or physical assets, which leads to distorted market dynamics.

What is the reason for the ban on day trading

Stock as well as cryptocurrency exchanges are setting up rules that aim to ban day trading. As we already know from the above, this is done to ensure fairness and order in the market. Frequent and excessive trading activity of investors can lead to disruption of the stability of the exchange rate and the market as a whole, as well as create conditions in which selected traders and investors can gain some advantage over the rest. By applying various restrictions on day trading, exchanges strive to create equal and comfortable conditions for all participants.

Protective measures against day trading

The illegality of day trading and its restrictions are, in fact, the protective measures that are taken by financial regulators. These measures are aimed at protecting less experienced investors from the high risks they may face in this practice. Day trading requires a lot of knowledge, a deep understanding of market trends, and of course, the ability to technically analyze everything that happens in the market. Not everyone has enough experience and understanding of how to manage risks. Because of the lack of knowledge and experience, a trader may feel on the exchange as if in crypto casino games, which then creates a wrong understanding of the market and condemnation of any trader activity, which in addition is accompanied by loss of money.  

Why is day trading illegal

In addition to all of the above, day trading has a direct impact on the mental and emotional state of traders and investors. The fast pace of the market and the high-frequency nature of the market force users to be in a stressful situation, nervous, and negatively affect further being in trades. The unstable state of a trader entails rash actions, haste, absent-mindedness, and insufficient analysis of the market situation to open or close transactions. Which again, increases the risks for loss of funds.

The main mistakes of traders in day trading

If you still decide to try your hand at day trading, you should behave as calmly as possible and not lose control of the situation. Here are the most important mistakes, if you make them, your position in the market will be negative and you will lose money.

Unforeseen volatility and market reversal

Let's say you opened a few trades in the morning, expecting a great rise. However, in the afternoon, news comes out, which causes a complete market reversal. Thus, if a trader does not set a stop-loss or does not quickly close the transaction, he can lose a large amount of money.

You should not neglect risk management and ignore stop losses and the implementation of trading strategies!

Trading and decision-making on emotions

Often, inexperienced traders have a sense of fear or greed. Instead of following a predetermined plan and strategy, the trader succumbs to emotions, making impulsive, irrational decisions. This results in holding losing positions for too long or rebooting - exiting profitable trades prematurely.

Using high leverage

If you are unsure about the market, you should not apply high levels of leverage in an attempt to maximize your potential profits. Leverage increases your profits, but it also affects your losses. If the market moves unfavorably, a trader may face margin requirements, resulting in forced liquidation of the order and significant financial losses.


As you have already noticed, there are a number of factors that you can understand what are the reasons why day trading is illegal. This practice requires confidence and skillful behavior in the market, otherwise, it will be difficult for you to resist high risks and fast pace without losing money.

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