- The “So Easy It’s Ridiculous” Trading System
- 0. Introduction
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Individuals must decide which to use by the first day of the calendar year. The tax rate remains constant for both gains and losses, which is better when the trader is reporting losses. Most accounting firms use contracts for spot traders and contracts for futures traders.
The “So Easy It’s Ridiculous” Trading System
That's why it's important to talk with your accountant before investing. Once you begin trading, you cannot switch from one to the other. Most traders naturally anticipate net gains, and often elect out of status and into status. To opt out of a status, you need to make an internal note in your books as well as file the change with your accountant. Complications can intensify if you trade stocks as well as currencies because equity transactions are taxed differently, making it more difficult to select or contracts.
You can rely on your brokerage statements, but a more accurate and tax-friendly way of keeping track of profit and loss is through your performance record.
0. Introduction
This is an IRS -approved formula for record-keeping:. When it comes to forex taxation, there are a few things to keep in mind:. Whether you are planning on making forex a career path or are simply interested in dabbling in it, taking the time to file correctly can save you hundreds if not thousands in taxes. It's a part of the process that's well worth the time. Internal Revenue Service. Accessed Dec. Internal Revenue Code. Income Tax. Selling Your Home. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.
These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. Look at the first candel that will close above "Kijun Sen" indicator period 24 line,. A confirmed arrow means, when the candel above the arrow. This means a confirmed LONG arrow. Don't enter befor the candel has closed because.
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The candel has to close! When it is closed,. Don't forget to set a breakeven as soon as possible to protect your balance. Maybe after Pips in Profit. Exits can be executed with a trailing stop. Also advisable, there can be setted a fixed. THE EA:. So you can enter on many pairs simultaneously.
The '30 pips' exe 4 FILE indy has 2 files:. THE dll.
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The '30 Pips Indy' is a pivot based indicator that can be used also. It is a probability indicator to share the possible. A currency trading account reflects currency exchanges made in the past, and in an ideal situation where exchange rates never change, its balance is supposed to be zero. However, as the exchange rate fluctuates, so does the value of the currency trading account, and such fluctuations correspond exactly to currency gains and losses. At the end of an accounting period, one may move the actual "realized" gain or loss to an income or expense account denominated in the reference currency.
Let us now illustrate the use of a currency trading account by redoing the example from Sections 2 and 3. We replace the "currency gain" account by a "currency trading" account between U. Note that transactions that do not involve currency conversions like "buy food" on January 7 are entered in the usual way for double entry accounting.
Transactions that do involve currency conversions like "exchange" on January 2 and 5 or "buy food" on January 3 must go through the trading account. Conceptually, when exchanging Canadian dollars for U. However, there is a sign reversal, so money moved "into" the trading account is given a negative sign and money moved "out of" it is given a positive sign.
Comparing the use of a currency trading account as in Table 4. Indeed, the value of the trading account is "self-adjusting", because it is sensitive to exchange rates. Since no manual adjustments or re-valuations are needed, the question of when to record them becomes a moot point. Another consequence of the self-adjusting nature of currency trading accounts is that there is no penalty for entering or changing transactions retroactively. Unlike in the SSAP 20 system, where retroactive transactions have an effect on future transactions and balances, in the currency trading account system, retroactive currency transactions only affect future balances and not future transactions.
In this respect, their effect is no different from other retroactive transactions. Also note that, when using the currency trading account method as in Table 4. Instead, the foreign currency assets are held directly in an account. Another advantage of the currency trading account method is that it provides some flexibility in tracking income and expenses from currency exchange.
For many applications, it will be sufficient to have just a single currency trading account.
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But it is also possible to have several such accounts, for instance, one account for each foreign currency, or one account for each branch of your business, or one account for each customer. This makes it possible to keep track of foreign exchange gains and losses attributed to different sources.
There is no reason that a single currency trading account has to be limited to two currencies. It is possible to set up a currency trading account to account for gains and losses from trades between three or more currencies. The balance in such an account is expressed as a sum or difference of amounts from each of the participating currencies. Here is a summary of the main advantages of using currency trading accounts for multi-currency accounting:. The most important conceptual facts to remember about currency trading accounts are the following:.
The accounting method using currency trading accounts is mathematically equivalent to methods such as SSAP By this, I mean that it can be used to generate financial reports that are identical to those generated under SSAP Indeed, suppose we were to generate a financial report from the data in Table 4. We have recorded the following balances at the end of January Using the exchange rate of 1. Here is the "translated" balance sheet:. Keeping in mind that a currency trading account is a special kind of income account representing a foreign exchange gain, the translated balance sheet is exactly identical to the end-of-day balances for January 3 obtained from the SSAP 20 method that are shown in Table 3.
Therefore, after translation to the "reference" currency, both accounting methods yield identical data and generate identical financial reports. Suppose you are a Canadian company selling goods to U. Your books are mostly kept in Canadian dollars, but you invoice your customers in USD. Your customers are given 10 days to pay after you send them an invoice, and some additional time may pass until you receive and deposit their USD cheque in your CAD bank account.
Foreign exchange gains and losses will occur if the exchange rate changes between the invoice date and the date the payment is received and converted to CAD. Suppose that, for some reason, you would like to track foreign exchange gains and losses on a per-customer basis for example, you want to determine whether it would be worthwhile to tighten some customer's payment terms.
This can easily be done by using one currency trading account for each customer. The trading account balances on January 20 show that your interaction with customer 1 resulted in a foreign exchange gain of CAD 5, whereas your interaction with customer 2 resulted in a foreign exchange loss of CAD The fact that a particular foreign currency interaction is "finished", i.
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The same method can be used to track foreign exchange gains and losses associated with any division of sources that you care to keep track of. For example, you might want to separate exchange gains and losses from different parts of your business, or from different countries this works even when several countries share the same currency. So far, I have discussed a method for calculating gains and losses from currency transactions and by extension, from transactions with other types of variable-priced assets, such as barrels of oil or shares of stock.
Such gains and losses are also called capital gains and losses. In practice, it is often important to distinguish between realized and unrealized gains and losses. One area where this distinction is relevant is taxation: usually, only realized gains are taxable.
The exact determination of whether a particular gain or loss is realized or unrealized is often tricky, and the rules vary from country to country.
In this section, I will briefly discuss these issues, and show how they can fit into the multi-currency accounting method. In general terms, when you own a variable-priced asset, market fluctuations will cause the value of the asset to change over time.