Take forex trading as a business. You need to seriously treat trading as a business. If you are currently trading for a living or want to take on trading as a future substitute of your current job, you should always remember to take trading as a business.
How are you going to treat trading as a business? You need to give some consideration to the fact that how you are going to deduct your monthly expenses such as your computer equipment, your quote feed, your DSL line, travel to investment conferences and continuing education seminars. You should think whether you need to form a private limited company or a public limited company.
You should seek advice from a tax specialist so that you can take advantage of all the regular and necessary expenses as business deductions. This can help you save thousands of dollars annually.
Many people jump into trading without giving any consideration to these issues. For them the target is to start making money as early as possible. They need not waste time on other non trading issues. After you have consistently started making money in the market, it would be heart breaking to know that you cannot make expense deductions that could literally save you thousands of dollars.
Treating trading as a business will help you focus on it just like any other brick and mortar business. Lets see what can be your expenses as a forex trader: You need to have a room where you have the required peace for trading. Suppose you rent a small one room office that could cost you like $500-1000 per month. Then you have to have equipment that includes desktop computers, printers, laptop for travel and so one. Lets say these things cost you $5000.
You need a good DSL connection for your trading, $50 per month for the DSL expense. A price quote feed might cost you like $200 per month. You attend an investment conference that might cost you $1000 roundtrip airfare plus $300 per night for the night stay at a hotel.
There will be many business entertaining expenses for you. If you have business entertaining expenses and went to two investment conferences per year, you could be taking as little as $5000 to $25,000 per year in actual business expenses that could be deducted if you are running trading as a business.
If you a small time investor and decide that trading for a living is something that interests you. Do you have the financial resources, time and emotional makeup to trade full time. Do you have a business plan? What business plan you have in place to protect the money you make in the market.
As a long term trader what will you do when the market conditions change according to your system or methods? You need to cover your cost of living expenses, mortgage payments as well as your business expenses.
In forex trading, there are no commissions per trade like that in the stock market. But you have to cover the bid-ask spread each time you trade as a trading cost. The forex market offers you a unique opportunity to participate on a pay as you go method because there are no commissions. Forex dealers provide free charts and quotes.
You need to keep this in mind that trading is not free. Suppose you are a day trader, you trade twice a day with a 2 pips bid-ask spread. Suppose you trade 10 lots ($100,000) each trade. So your daily trading cost will be $400 = (2) (2) (10) (10). If there are 200 trading days in a year, it means $80,000. Not to talk of your actual trading losses, first you need to cover $80,000 as your trading cost annually.
How are you going to treat trading as a business? You need to give some consideration to the fact that how you are going to deduct your monthly expenses such as your computer equipment, your quote feed, your DSL line, travel to investment conferences and continuing education seminars. You should think whether you need to form a private limited company or a public limited company.
You should seek advice from a tax specialist so that you can take advantage of all the regular and necessary expenses as business deductions. This can help you save thousands of dollars annually.
Many people jump into trading without giving any consideration to these issues. For them the target is to start making money as early as possible. They need not waste time on other non trading issues. After you have consistently started making money in the market, it would be heart breaking to know that you cannot make expense deductions that could literally save you thousands of dollars.
Treating trading as a business will help you focus on it just like any other brick and mortar business. Lets see what can be your expenses as a forex trader: You need to have a room where you have the required peace for trading. Suppose you rent a small one room office that could cost you like $500-1000 per month. Then you have to have equipment that includes desktop computers, printers, laptop for travel and so one. Lets say these things cost you $5000.
You need a good DSL connection for your trading, $50 per month for the DSL expense. A price quote feed might cost you like $200 per month. You attend an investment conference that might cost you $1000 roundtrip airfare plus $300 per night for the night stay at a hotel.
There will be many business entertaining expenses for you. If you have business entertaining expenses and went to two investment conferences per year, you could be taking as little as $5000 to $25,000 per year in actual business expenses that could be deducted if you are running trading as a business.
If you a small time investor and decide that trading for a living is something that interests you. Do you have the financial resources, time and emotional makeup to trade full time. Do you have a business plan? What business plan you have in place to protect the money you make in the market.
As a long term trader what will you do when the market conditions change according to your system or methods? You need to cover your cost of living expenses, mortgage payments as well as your business expenses.
In forex trading, there are no commissions per trade like that in the stock market. But you have to cover the bid-ask spread each time you trade as a trading cost. The forex market offers you a unique opportunity to participate on a pay as you go method because there are no commissions. Forex dealers provide free charts and quotes.
You need to keep this in mind that trading is not free. Suppose you are a day trader, you trade twice a day with a 2 pips bid-ask spread. Suppose you trade 10 lots ($100,000) each trade. So your daily trading cost will be $400 = (2) (2) (10) (10). If there are 200 trading days in a year, it means $80,000. Not to talk of your actual trading losses, first you need to cover $80,000 as your trading cost annually.
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Try Strignano's Forex Signals free. Discover a revolutionary Forex Robot Trading System!
