Why you shouldn't trade Forex

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jhtumblin
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Why you shouldn't trade Forex

Postby jhtumblin » Mon Nov 23, 2009 4:18 pm

I figured I would start a fire in the house of money.

Anyhow, yesterday I took my quarterly visit to my accountant. Evidently Uncle Sam doesn't think I pay him enough at the end of the year, surprising huh?

I have been trading FX on and off for several years along with many other equities. I guess I jumped on the bandwagon because of the profit potential, liquidity, and market flexibility namely the hours of operation. I had to bring in some older records from futures trading so that I could have the accountant amend some documents for the IRS and so they don't throw me in jail of course.

She made a remark that my operation expenses had gone way up in the past 2 years. Of course I asked what exactly she meant. And she says that I am up almost 5x what I currently spend in trading fees. I have been making more trades recently, but not enough to amount to that number so I had to break it down.

Now, I am not blind and I have done the simple math on these things and what I thought was good obviously isn't so good:

Commissions in FX.......I am not talking about any particular broker, fixed spread or ECN it doesn't matter. Transaction costs for forex are absurdly high and much more expensive than stocks, commodities, or futures.

Example:
I will use all MBTrading fees since that is who my forex account is with and they have good rates on other equities also.

EUR/USD: 1 full lot; spread 0.8 = $8.00, Commission $7.49 per side = $14.98
Total: $22.98 gets you control of $100000 USD

Compared to Stocks
DIA: 954 shares @ $104.72 transparent spread of $0.01 =$9.54 Commission $4.95 per side = $9.90
Total = $19.44 you control $100000 USD

Compared to Futures
YM mini Dow transparent spread 1 tick = $5 commission $2.20 per side = $9.40
Total = $4.40 you control $50000 (currently)

Ok, there's the full math and that is assuming you are getting the spread listed for forex which if you have a fixed spread broker or trade during off peak hours the cost goes WAY up, sometimes 40 or 50 dollars. I understand the leverage arguments and margin requirements are higher in stocks at 25% intraday and futures run about 2%. But that is near irrelevant when you spend quadruple transaction fees to place the same trades in other markets (we do know that the transparent spreads in stocks and futures are mostly never paid, I had to put them in to be fair).

So lend me your thoughts. I however, will be moving back to stocks and commodities exclusively until the retail brokers are able to figure this out.

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DaleTee
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Postby DaleTee » Mon Nov 23, 2009 6:10 pm

Stocks and Futures are regulated accounts and your money is keep separate from the brokers funds. Forex accounts are not. Your broker can gamble with your excess funds. If he goes bankrupt, his creditors have first claim on your money. Just ask those who had Refco forex accounts.

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adaseb
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Postby adaseb » Tue Nov 24, 2009 1:26 am

I didn't think you could write-off brokerage commission fees?

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es/pip
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Postby es/pip » Tue Nov 24, 2009 1:54 am

adaseb wrote:I didn't think you could write-off brokerage commission fees?


you cant


if someone knows a way to do that -------do tell
Bend over and assume the position for another 4 years of hope and change.

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Postby Humble » Tue Nov 24, 2009 4:36 am

DaleTee wrote:Stocks and Futures are regulated accounts and your money is keep separate from the brokers funds. Forex accounts are not. Your broker can gamble with your excess funds. If he goes bankrupt, his creditors have first claim on your money. Just ask those who had Refco forex accounts.


Must depend on which country you are in.

In the UK and OZ for example, these accounts must also be separated.
Is price closing higher or lower than something? Simple yet powerful question. ..MO

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jhtumblin
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Postby jhtumblin » Tue Nov 24, 2009 7:18 am

If you are not deducting commissions from your net capital gains taxes.......well you may as well be wiping your poo with $20 bills. Please do see your tax professional.

Edit: This is in regard to U.S. taxes, I have no idea about capital gains tax anywhere else but Switzerland.

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Postby noone22 » Tue Nov 24, 2009 8:05 am

jhtumblin wrote:If you are not deducting commissions from your net capital gains taxes......


It's so crazy in US.
Trader have to pay capital gains tax on Forex income!
What about income tax?
And how much are you giving away then?
More than 50% of gross income or so?

And in any normal accounting, commisions fees are
tax deductable.

Of course, your tax adviser may say you something (or completely)
different - but he also want to eat bread with butter, you know.

jhtumblin
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Postby jhtumblin » Tue Nov 24, 2009 7:43 pm

oh yes my friend, the U.S. is one of the only capitalistic countries I know that penalizes, aka "taxes" people, for reinvesting in their own economy. Now I realize that trading is not investing but I have investments as well. To add insult to injury, you are correct, we are actually double taxed on near everything, especially capital gains, even dividends! I haven't paid 50% yet but I have some investments that have cost me 48.5% and I have a top notch accountant, one who knows how to hide the income as much as legally possible.

This is not new either, these capital gains taxes are probably one of the longest standing socialist practices in the U.S. Only a matter of time before the rest takes over.

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Postby noone22 » Wed Nov 25, 2009 12:36 am

If I were in USA, I would then consider either of 2:

1) opening offshore company and trade from its account,
virtually paying no taxes at all

2) open trading account with Swiss or Dutch broker,
and not declaring this income to US taxman
(assuming that he wouldn't ever find out)

Giving away more than 50% - it's a Middleage robbery on the open road.

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Postby Humble » Wed Nov 25, 2009 2:09 am

jhtumblin wrote: we are actually double taxed on near everything, especially capital gains, even dividends!


You probably don't want to know, but in a sense we can get a tax deduction on some dividends. When a company's divi is paid from their after tax dollars - we pay tax on the divi at our own tax rate, but receive a credit for the tax already paid by the company.

So if our tax rate is less than the company's, we get a tax deduction on the difference. Read it again and weep!
Is price closing higher or lower than something? Simple yet powerful question. ..MO

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