Spinach Muncher
04-06-2005, 06:09 PM
As a Dinar trader it is important for you to understand the differences between cash Forex and currency futures. This will give you an idea of what direction you should head when CASHING IN and claiming it on your taxes. In currency futures, the contract size is predetermined. Futures traders exercise leverage by utilizing a performance bond or margin to control a futures contract. (Margin is money deposited by both the buyer and the seller to assure the integrity of the contract.)
With liquidity in mind, the futures market may seem limiting because the data flow comes to a stop at the end of the business day (just as it does with the stock market) thus disrupting your perception of the market. For some traders this could lead to a certain level of anxiety. For example, if important data comes in from England or Japan while the U.S. futures market is closed, the next day’s opening could be a wild ride.
In contrast to the futures market, the spot Forex market is a 24-hour, continuous currency exchange that never closes. There are dealers in every major time zone, in every major dealing center (i.e., London, New York, Tokyo, Hong Kong, Sydney, etc.) willing to quote two-way markets. The size of this market, a 1.5 to 3.5 trillion dollar per day market gives you near perfect liquidity. Because of the advantages of sheer volume and daily volatility, the excitement of this market is unparalleled.
We as dinar (cash) investors fall under the "Cash Forex" category. Currency traders involved in the forex spot (cash) market, can choose to be taxed under the same tax rules as regular commodities [IRC (Internal Revenue Code) Section 1256 contracts] or under the special rules of IRC Section 988 (Treatment of Certain Foreign Currency Transactions). IRC 988 applies to cash forex unless the trader elects to opt out.
Under Section 1256, forex traders can have a significant advantage over stock traders. By reporting capital gains on IRS Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles), forex traders are allowed to split their capital gains on Schedule D using a 60% / 40% split. This means that 60% of the capital gains are taxed at the lower, long-term capital gains rate (currently 15%) and the remaining 40% at the ordinary or short-term capital gains rate, which depends on the tax bracket the trader falls under (as high as 35%). This results in an average rate of 23%, which is 12% less than the regular (short-term) rate.
:wave:
Sources:
http://www.tradersaccounting.com/TaxTipsForTraders120804.asp
http://www.tradingacademy.com/lessons/lessons20041214.shtm
http://answers.google.com/answers/threadview?id=470486
TAX RATE CALCULATOR:
http://www.moneychimp.com/features/capgain.htm
With liquidity in mind, the futures market may seem limiting because the data flow comes to a stop at the end of the business day (just as it does with the stock market) thus disrupting your perception of the market. For some traders this could lead to a certain level of anxiety. For example, if important data comes in from England or Japan while the U.S. futures market is closed, the next day’s opening could be a wild ride.
In contrast to the futures market, the spot Forex market is a 24-hour, continuous currency exchange that never closes. There are dealers in every major time zone, in every major dealing center (i.e., London, New York, Tokyo, Hong Kong, Sydney, etc.) willing to quote two-way markets. The size of this market, a 1.5 to 3.5 trillion dollar per day market gives you near perfect liquidity. Because of the advantages of sheer volume and daily volatility, the excitement of this market is unparalleled.
We as dinar (cash) investors fall under the "Cash Forex" category. Currency traders involved in the forex spot (cash) market, can choose to be taxed under the same tax rules as regular commodities [IRC (Internal Revenue Code) Section 1256 contracts] or under the special rules of IRC Section 988 (Treatment of Certain Foreign Currency Transactions). IRC 988 applies to cash forex unless the trader elects to opt out.
Under Section 1256, forex traders can have a significant advantage over stock traders. By reporting capital gains on IRS Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles), forex traders are allowed to split their capital gains on Schedule D using a 60% / 40% split. This means that 60% of the capital gains are taxed at the lower, long-term capital gains rate (currently 15%) and the remaining 40% at the ordinary or short-term capital gains rate, which depends on the tax bracket the trader falls under (as high as 35%). This results in an average rate of 23%, which is 12% less than the regular (short-term) rate.
:wave:
Sources:
http://www.tradersaccounting.com/TaxTipsForTraders120804.asp
http://www.tradingacademy.com/lessons/lessons20041214.shtm
http://answers.google.com/answers/threadview?id=470486
TAX RATE CALCULATOR:
http://www.moneychimp.com/features/capgain.htm