Next Week

Next Week

Next Week

August 18, 2017

Central Banks: Iceland, Indonesia and Hungary have planned monetary policy reviews next week, and Draghi and Constancio of the European Central Bank speak publicly.

Holidays and Special Events: The Hindu holiday of Garesh Chaturthi begins Friday, and the annual Jackson Hole central banking symposium, hosted by the Kansas City Fed, runs from Thursday through Saturday.

Scheduled U.S. Economic Data Releases: New and existing home sales, the Richmond and Kansas City Fed manufacturing indices, the FHFA housing price index, durable goods orders and weekly jobless insurance claims, mortgage applications, consumer comfort, chain store sales and energy inventories.

Japanese Statistics: Consumer prices, all industry index, machine tool orders, index of leading economic indicators, preliminary manufacturing purchasing managers index and department store sales.

Selected Other Asian Indicators: Malaysian, Hong Kong and Singaporean consumer prices. Indian and Chinese indices of leading economic indicators. Thai GDP, Hong Kong trade and Singaporean industrial production. South Korea consumer sentiment and producer prices.

Euroland: Preliminary consumer confidence, ZEW index of investor sentiment, index of leading economic indicators, and flash PMI readings for August.

Members of the Euro Area: French and German preliminary PMI results. German GDP, consumer confidence, ZEW index of investor confidence, and import prices. French business sentiment and consumer confidence. Spanish PPI, GDP and trade balance. Irish and Finnish PPI. Dutch and Belgian consumer sentiment. Greek and Portuguese current accounts. Austrian industrial output and Finnish unemployment.

U.K. and Switzerland: British GDP, public sector borrowing, BBA-reported mortgage approvals, Rightmove house price index, and CBI surveys of industrial trends and distributive trades. Swiss trade surplus and industrial production.

Nordic Europe: Danish and Norwegian consumer confidence. Norwegian, Swedish and Icelandic unemployment. Norwegian GDP, Icelandic wages, Danish retail sales, and Swedish producer prices.

Eastern Europe: Czech consumer and business sentiment. Polish unemployment.

Australia, New Zealand, Turkey and South Africa: Australian and South African indices of leading economic indicators. New Zealand trade, South African CPI, and Turkish consumer confidence.

Canada, Mexico and Brazil: Mexican and Canadian retail sales. Mexican and Brazilian current accounts. Mexican GDP and unemployment. Brazilian consumer sentiment and Canadian wholesale turnover.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: Economic Data Calendar


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Trader Tax Advantages and How You Can Get Them

Trader Tax Advantages and How You Can Get Them

trader tax advantages


The good news is that if you are a full-time, hardcore Forex trader, there are some significant tax advantages available to you that aren’t available to more casual market participants. The bad news is that it’s pretty tough to qualify for them. But we’ll get to that in a bit. Why would it be a good idea to qualify as a ‘trader’ for federal income tax purposes?

First of all, you get to deduct a lot more. If you’re a full-time trader, rather than a garden-variety do-it-yourself investor, you get to list your deductions on a Schedule C. Essentially, the IRS then recognizes all your trading expenses as business expenses. Everyone else has to use Schedule A. That difference right there can potentially save a trader a chunk of change when it comes time to file income taxes.

The Schedule C Advantage

Normally individual investors have to deduct their trading and investment expenses on Schedule A of their individual income tax return. The IRS treats them as miscellaneous itemized deductions, and as such, they are generally subject to a 2 percent of adjusted gross income threshold before they become tax deductible. This means if an investor has an annual income of $100,000, and $5,000 of trading expenses, he can only deduct $3,000 (assuming no other miscellaneous itemized deductions).

A trader in the exact same situation, but who qualified for trader tax status, lists trading expenses on Schedule C, Profit or Loss from Business. Schedule C expenses aren’t subject to the 2 percent threshold that applies to miscellaneous itemized expenses, and therefore the trader would be able to deduct all $5,000. The same deal applies to interest expense if any. This is significant for forex and commodities traders, who are often highly leveraged and therefore may have significant interest expenses. Traders can deduct every penny of interest on their Schedule C, where individual investors must list investment interest expense as a miscellaneous itemized deduction on Schedule A. (Note: Commissions and other costs of acquiring or disposing of securities are not deductible but must be used to figure gain or loss.). This became an even more significant issue beginning in 2013, as so-called “Pease limitations” restricted the amount of miscellaneous itemized deductions you could take if your income was over $250,000 (singles) or $300,000 (married filing jointly). Furthermore, while investors can only deduct interest expense to the extent of investment income, traders have no such limit. If interest expenses exceed investment income, traders can deduct any amounts left over against ordinary income. This is true even if interest expenses exceed investment income by more than $3,000.

The Section 475 Mark-To-Market (MTM) Election

This is a significant tax advantage available to qualified traders that aren’t available to ordinary investors. The IRS allows those qualifying as traders to elect mark-to-market (MTM) accounting on securities and Section 1256 contracts. The rules are laid out in Section 475 of the Internal Revenue Code. The rule lets you treat any covered security you hold (other than for inventory, which isn’t applicable to most individual traders) as though you sold it for its fair market value at the end of the year. So you don’t have to sell anything to recognize a taxable loss (or gain) for that matter. Gains are treated as ordinary income, and losses are treated as ordinary losses. Ordinary losses are better to have than capital losses because you can use them to offset all types of income, including ordinary income, capital gains, interest and portfolio income and passive income.

In contrast, usually, any investor in a Section 1256 contract has to accept capital gains tax rules. That hurts because if you have more than $3,000 in net losses after your gains are canceled out, you can’t deduct the excess losses above the $3,000 mark against income. If you’re a trader, you can get around this limitation by making the Section 475 MTM election with the IRS (though you have to do so by April 15th. You can’t look back in time and make the election).

Tip: If you have a large 1st quarter loss, you may want to consider making this deduction to ensure that you can maximize your write-offs. Many advisors recommend it to the vast majority of their clients, because the downsides are few and far between, compared to the upsides of MTM election.

If you blow the election deadline, you can still form a new entity and trade through that, as long as you make your election within 2 months and 15 days of forming the entity.

Carryback of Losses

Got excess losses? Investors are out of luck on anything over $3,000, as we mentioned. They have to carry those losses forward and apply them in future years. But if you’re a trader, and you qualify for the MTM election, that election allows you to carry losses backward in time, and get a refund from a limited number of prior tax years!

The Alternative Minimum Tax

If you are subject to the alternative minimum tax, most of your investment expenses get ‘clawed back,’ or disallowed under the AMT. That’s not true, however, if you qualify as a trader under IRS rules. Your expenses get treated as deductible business expenses under either set of tax rules. Investors, as opposed to traders, have to list capital gains and losses on Schedule D.

Do I Qualify for Trader Status? 

While the tax advantages of trader status are significant, it’s not easy to qualify for them. According to the IRS,

  • You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation;
  • Your activity must be substantial; and
  • You must carry on the activity with continuity and regularity.

Obviously, Congress wrote in a lot of wiggle room, because each of these standards is very subjective. The law has never specifically defined terms like “substantial” and “with continuity and regularity,” nor has Congress offered traders much in the way of safe harbors. So where the statute doesn’t provide much guidance, we must look to actual enforcement actions, regulations and case law for guidance. In a recent U.S. Tax Court case, Endicott v. Commissioner, the court specifically ruled that executing in trades 75 times in one year and 99 times in another was not sufficient to qualify as continuous and regular trading. This was despite the fact that Endicott did, in fact, devote substantial time to monitoring his investments on days in which he did not execute any trades.

Furthermore, the judge held buy-and-hold investing against him. Yes, it seems strange to think of someone who engages in 99 trades in a year as a ‘buy-and-hold’ investor. But the facts in the case led the judge to conclude that Endicott was looking to dividends and capital gains to generate his profits, rather than adhering to the IRS’s requirement that he depends on daily market movements. Endicott’s average holding period per trade during the years covered by the dispute was 35 days, during which time Endicott collected $120,000 in dividends or more. Furthermore, Endicott, a retired business owner, collected over $350,000 in consulting fees during the same period. With so much income from an outside source, the court held, Endicott as an individual could not be considered to be a full-time trader.

So what do you need to do?

Robert Green, CPA, an accountant who specializes in providing services for active traders, has laid out what he calls his “Golden Rules” for qualifying for trader status. Given the precedents established by case law and private letter rulings, Green suggests the following are the real criteria to establish oneself as a trader for tax purposes:

  • Trade full-time or part-time, all day, every day.
  • Minimum 4 hours per day, average, working your trading business.
  • No real lapses in activity. You trade all year long like you’re working a full-time job.
  • Trade on 75 percent or more of available trading days.
  • You should be making 1,000 trades or more each year.
  • Most of your trades should be day or swing trades
  • Your demonstrated intent should be to make a living as a trader.
  • You have invested heavily in tools, education, software, etc.
  • You have a home office or dedicated office space outside the home.
  • Your account size should be big relative to your overall assets.

Furthermore, Green says, algorithmic trades don’t count. You have to be the one pulling the trigger. In addition, your profit model should rely on buying and selling frequently at a profit. The more you rely on long-term holding, interest and dividend income, and capital gains you attempt to treat under capital gains tax rules, then the more questionable your status as a trader becomes.

For more specific information, see Green’s book, the Green Trader Tax Guide.

If you find that you do qualify for trader status and receive trader tax advantages on your forex income, share your thoughts with us!

Contributor:  Jason Van Steenwyk

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Winners Edge Trading was founded in 2009 and is working to create the most current and useful Forex information and training available on the internet.

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Reduced Fear of Korean War

Reduced Fear of Korean War

Reduced Fear of Korean War

August 15, 2017

Today is the 72nd anniversary of Korea’s liberation from Japan, and markets there are closed. Reported remarks by the leaders of both Korean nations dispelled fear of an imminent resumption of war.

Markets were also closed today in India for a holiday commemorating the 70th anniversary if independence and Italy for Assumption Day.

The dollar rose today by 0.9% against sterling, 0.7% relative to the yen and Australian dollar and 0.4% versus the euro.

U.S. stocks at mid-day are little changed on balance. Equities are up 0.4% in France and the U.K. but down 0.3% in Hong Kong.

Reduced haven demand for gold depressed its price by 0.9% to $1,279.1 per ounce. WTI oil also has decline, sliding 0.5% to $47.36 per barrel.

10-year U.S. Treasury and German bund yields climbed back another three basis points.

Slower-than-forecast British inflation accounted for sterling’s drop of nearly 1%. CPI inflation held steady at 2.6% with a 0.1% on-month dip. PPI inflation also decelerated in July. House price inflation of 4.9% was 0.1 percentage point lower in June than May. The U.K. index of leading economic indicators slipped 0.1% in both May and June.

U.S. retail sales advanced 0.6% last month, twice expectations and raising the 12-month rate of increase to 4.2% (3.8% excluding motor vehicles).

U.S. import prices edged up 0.1% in July after dipping 0.1% in May and 0.2% in June. Import prices remained just 1.5% higher than a year earlier despite an 8.9% leap in fuel. Export prices were 0.8% above their year-earlier level.

The NY Fed’s Empire State manufacturing index jumped from 9.8 in July to an August reading of 25.2, best since September 2014. The U.S. National Association of Home Builders housing market index rose four points to a 3-month high of 68 in August.

German real GDP climbed 0.6% on a quarterly and calendar-adjusted basis last quarter and was 2.1% greater than a year earlier. That’s stronger than the 1.9% growth in full-2016 and the 2.0% on-year pace in 1Q17.

Japan’s growth in industrial production during June was revised up 0.6 percentage points to 2.2%. The revised 12-month rate of increase, 5.5%, compares to 4.9% reported initially. Output advanced 2.1% in 2Q and by 5.8% from 2Q16. Capacity usage in June was 5.5% greater than a year earlier.

Minutes from the Reserve Bank of Australia’s Board meeting earlier this month revealed rising concern about domestic housing and excessive household debt, less concern about wage growth, and confidence the inflation will remain low. Macroeconomic forecasts for next year and 2019 were not changed. Officials seem less likely to modify policy because of a firm Aussie dollar.

Chinese bank lending growth fell in July to the smallest monthly total thus far in 2017 as was expected. M2 money growth of 9.2% was lower than expected and the slowest so far in 2017.

Australian  motor vehicle sales fell 2.0% in July but were 1.8% above their year-earlier level.

The Swiss producer price/import price index was flat in July and 0.1% below its year-earlier level. Danish producer prices in the the same 12 months rose 1.5%. Swedish consumer price inflation accelerated to 2.2% in June.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: Chinese money growth, German GDP, import prices, U.S. retail sales


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Forex Video: Trailing Stop or Hard Take Profit?

Forex Video: Trailing Stop or Hard Take Profit?

In trading, there are a lot of different debates… The debates range from Scalping vs Swing Trading to Martingaling vs Anti-Martingaling to Automated Trading vs Manual Trading, etc.

Today, I want to discuss the logic of using a trailing stop to get out of trades vs trying to hit a  hard take profit.

In my opinion, this is a crucial question… This is a question that could determine whether a trader is profitable or unprofitable.

With that said, let’s take a look at how to answer it.

There are a lot of things to take into consideration when pondering this, but obviously, the most important thing to consider is which is going to be more profitable in the long run. Remember, if you want to build wealth over a long period of time, it is imperative that you choose a trade management style that is going to make more profit over multiple years. Another thing to keep in mind is that you can change your entry strategy according to market conditions, but use the same type of trade management strategy with all different kinds of entry rules.

I have two goals for this article.

My first goal is to get feedback. I want to know what our readers are doing in terms of trade management, why they are doing it, and if it is working. Getting feedback from hundreds of real, active traders is the best way I know of to learn more about Forex trading. So whether you are losing money every day, treading water, earning small profits, or a millionaire trader, I really, really want your feedback on this so that I can learn more and so that other readers can learn more. Please vote AND leave a comment with more in-depth information. I will appreciate it and so will many other traders.

My second goal is to illustrate what I believe about this matter. I want to explain my feelings about this topic and give you an idea of why I am in very strong support of one side.

Before watching the video on what I think, please vote on which you think is a better way to manage trades:

Thanks for voting! Please also leave a comment to share why you voted the way you did!

I am now going to share my personal opinion via a special forex video on this matter. This is, of course, just my opinion, but I hope I can shed some light on how to use trailing stop and hard take profit