Forex trading lets you profit from the financial markets no matter what happens to stock markets. Stock markets can go up and down but you can always profit from forex markets.
Inflation or deflation, you can profit from forex trading. Interest rates can go up or it can go down, forex trading gives you the opportunity to profit in both instances unlike stock trading.
You have to pay a capital gain tax for any investment in financial markets. Capital gains will be considered short term if it is less than one year. Short term capital gains are taxed at your current tax rate.
And in case, you hold the security for more than one year before you take profit, you will have to pay long term capital gain tax, taxed at a rate of 15% only.
Forex investment has a tax advantage as compared to the stock investment. In case of forex, 60% of your profits will be taxed as long term capital gains and only 40% will be taxed as short term capital gains whether you hold forex for one minute, one hour, and one month or more.
Lets use an example to make it clear. Suppose you buy stocks worth $10,000 and forex worth $10,000 simultaneously. Further suppose youre in 33% tax bracket. Lets further suppose that you make $10,000 profit in stock and $10,000 in forex each in six month.
Since, you are in 33% tax bracket and you took profit within six months on stocks, your profits will be taxed as short term capital gain. That means you will have to pay $3,300 as tax and your profit after taxes will be only $6,700.
In case of forex, even though you took profit within six months, 60% of your profit will be treated as long term capital gain and 40% will be treated as short term capital gains. That means 60% of $10,000 will be taxed at only 15%. This is (0.6) (10,000) (0.15) =$900.
40% of your profits in forex will be taxed as short term capital gains at your current tax rate of 33% which calculates as (0.4)(10,000)(0.33)= $1,320.
So the total tax that you pay on your forex investment will be ($900) + ($1,320) =$2,220. But your tax on stock investment was $3,300 which is $1100 more than the tax on the same capital gain on your forex investment.
Tax savings like that can add up quickly. You can also accumulate profits quickly by investing in the Forex market within your IRA or other tax-deferred retirement account.
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