Day trading with leftover NISA allowance

[Jamo]

So it looks like we won't be able to fully utilize my wife's NISA allowance for this year, so I'm considering doing some day-trading to make the most of it. Maybe start off with 100,000 yen. Given that in Japan most transactions require the purchase of 100 stocks, the individual stock price is going to have to be quite low in order to make it worth my while (i.e. not blow the whole remaining NISA allowance).

I've got around 1,000,000 yen of NISA allowance to utilize, so theoretically I could buy and sell 20,000 yen worth of stock (hopefully making a profit) 50 times. Or 10,000 yen worth of stock 100 times, etc. I'm new to day trading, but I guess I'll be trying to find something with high-liquidity and volatility. I realise the profit/time spent ratio is going to be small with such a small initial amount, but it could be a useful learning experience.

I haven't started researching yet, but does anyone have any experience day trading in Japan? Is it possible to find such stocks? I'd love to hear your thoughts!

[N00bster]

I am not sure I understand why you want to do that instead of just using the allowance at the last minute, but here is another reason why this may be a bad idea: just as profits on a NISA are not taxed, losses cannot be used to reduce your taxable income.

So if you absolutely want to day trade, it may actually be safer to do it on a regular account.

If you just want to play and learn, a paper trading account sounds like the safest option.

[Jamo]

I am not sure I understand why you want to do that instead of just using the allowance at the last minute

As I said, we won't be able to utilize the full amount (in one hit). We don't have a spare million yen to invest, but a starting amount of 100,000 yen is possible. Or do you mean just invest the 100,000?

losses cannot be used to reduce your taxable income.

Thanks, I'll keep that in mind!

If you just want to play and learn, a paper trading account sounds like the safest option.

I want to make profit while learning. I don't mind the risk with a relatively small amount. Although my mind might change when it comes to pressing the buy button

[RetireJapan]

It's not quite the same, but I'm planning to use some of my NISA next year to buy small value Japanese shares, in the hope that they will go up and I can sell them for a tax-free profit (which will then go into VT in my tax-reporting account).

[sutebayashi]

With less than two months in the year, 1,000,000 yen worth of “tax free” beginners day-trading sounds risky to me.

I’d put what money I want to invest long term into my overall portfolio allocations, and be sure you do get a tax benefit in the long term for at least that much.

Trying to use the 1,000,000 yen allowance with a trade-a-day, you run a high risk of losing money overall, rather than enjoying tax free profits.

If you do want to try day trading, I’d offer a suggestion that you open an SBI FX account, and try to make money trading 10 dollars at a time. Small peanuts, so the damage done in the learning process is minimal. If you find that day-trading is for you then you can ramp up after learning a few hard lessons. These days the markets go up, but when they go down fast they go down fast. I recall in 2009 when I was first dabbling in day-trading I lost 80,000 yen in two hours! So if you do try it, just keep your trades small. Once you’ve taken a few losses you’ll learn how you feel about those experiences and then decide how much you want to risk this way. Because there is risk on the other side of all rewards, taxfree or otherwise.

[DragonAsh]

I have spent almost 30 years in investment banking.

There is a zero percent chance you will make money day trading. None, zero, zilch.
Well, technically that's not correct - you could get lucky early on and make money in your first couple of trades and then stop.
Problem is, I have yet to meet a day-trader that stops before they've lost their initial investment.

Day trading and hoping to earn a profit is simply not realistic for anyone not working in an institutional setting (and that's even if we ignored trading costs). First, even the pros blow up all too frequently because the two great Heavyweights in investing -Fear and Greed - will make you do crazy things. Professional traders, with structured trading plans and risk management and built-in stop losses and experience in emotional control and stuff - and even they can and do lose tons of money when emotions take over. It usually starts out simply - you're convinced this trade will work so you keep adjusting your stop-loss point down. And down. And down. Now the price has fallen so far you're convinced it can't go lower, so you buy more to 'lower your average cost' - and now it falls further. And so on.

"The market can stay irrational longer than you can stay solvent".

But ok - let's suppose you're actually a brilliant trader, a great chartist, with Buddha-like emotional control. Nothing fazes you. Guess what, you're STILL screwed because you're competing against institutional traders, hedge funds, HFTs, algos - all with far deeper market access and *considerably* faster access.

You can make money in the long run from the stock market, but the more short-term you're trading, the more you are simply chicken fodder for the big boys that can sit between you and the exchange and pick off order flow.

Sorry to be a wet blanket, but I've learned that people hear only what they want to hear, so sugar-coating anything rarely helps.

[akikana]

Not to be such a wet blanket on this idea but I too have the 30 years of banking experience and I took a couple of years out to day trade. With minimal leverage (less than 1.5x), a trading plan (including money management guidelines) I returned 30% on my trading capital over two years trading fx pairs: GBPJPY one year and EURUSD the next. So it is possible to be profitable but in line with DragonAsh it is incredibly difficult and you will lose money whilst you are practising: you will not make a profit during this time as this is the cost of learning what to do.

It is not a zero percent chance of making money activity but sure, the odds are not in a day trader's favour. Plenty of the pitfalls are known upfront so you make a trading plan that accommodates for this: if you think stop losses are too 'visable' then don't use them and the 'big boys' can't pick you off. If they do want to ride my trades then I'm more than happy for the company. Fine there are institutional and hedge funds out there, HFTs and algos, but keeping it simple and trading below these people's radar it will not present concerns.

In my banking experience I have worked with many 'traders'. Based upon what I learnt by teaching myself to trade, many of these 'traders' were gamblers. There is a big difference between the two. Writing a trading diary, printing off charts, being disciplined in your entries and exits will go a long way to keeping you in the market. Controlling you emotions will be the biggest factor to work on. I repeat: control emotion. If you can't then keep well away from the market and put the excess funds in to Vanguard Index funds. I don't believe the market screws you but it certainly teaches you lessons. With good money management and sticking to its terms, you will still have cash in the bank to try again in the market. I'd contend that speed of entry and deeper market access are really of no concern. But that was probably more to do with when I was happy to be in the market and the kind of time period I would keep trades on. It is a marathon and not a sprint. You cannot be a high roller. Position in to trades and position out of them again - never go all in or all out on profitable trades. In this way, bad entries are not so costly and good trades become a little more profitable.

This all takes time to learn, digest, understand, practise and then perfect. If you intend to do all this with real money then you may need to budget for a little more than initially anticipated. So you must paper trade if for no other reason than check out various platforms and understand how to place orders, understand leverage and make sure the charts show you what you need. Paper trading will also give you an idea of minimum trade sizes/margin utilisation. That then gives you an idea of how many losing trades you can have before you lose all your initial pot of money - or don't have sufficient funds in order to place an order.

To repeat, this is ultimately a mind game and an endeavour against your own inner demons. You cannot allow anything to chance. Get everything set up before you put real money in the market. Practice with pretend money. Make screw ups with paper money. Go big with paper money. Get it all out of your system as when you go in with real money it all needs to be just right in mind and environment. There's nothing quite like the experience of taking money out of the market through a well planned trade. There is nothing a soul crushing as taking a loss. Focus on taking losses with grace and in accordance with your trading plan limits. Paper money play will not prepare you for this in the slightest. It can only be learnt with real money. I'll happily admit I never mastered it fully, I never will and that's why I no longer day trade with real money. I do happily paper trade though!

The foregoing is all in respect of trading currency pairs. I'd wholeheartedly agree with DragonAsh's wet blanket tale if you are attempting to day trade shares in Japan (or any other country). Don't day trade shares. Never.

[Jamo]

I appreciate the response. I haven't gotten around to it yet and probably won't. It was kind of just a spur of the moment idea.