Forex trading earnings

IRC 988 contracts are simpler than IRC 1256 contracts. The tax rate remains constant for both gains and losses, which is better when the trader is reporting losses.

Huge forex bonuses

How Forex Trades Are Taxed, forex trading earnings.

Notably, 1256 contracts, while more complex, offer 12% more savings for a trader with net gains. A 60/40 tax treatment is often favorable for individuals in high income tax brackets. For example, the proceeds of stocks sold within one year of their purchase are considered short-term capital gains and are always taxed at the same rate as the investor's ordinary income, which can be as much as 37%. When trading futures or options, investors are effectively taxed at the maximum long-term capital gains rate, or 20% (on 60% of the gains or losses) and the maximum short-term capital gains rate of 37% (on the other 40%).

How forex trades are taxed

Find out the basics before you make your first foreign exchange trade

For traders in foreign exchange, or forex, markets, the primary goal is simply to make successful trades and see the forex account grow. In a market where profits and losses can be realized in the blink of an eye, many just want to make money in the short-term without really thinking about the longer-term ramifications. Nevertheless, it usually makes some sense to consider the tax implications of buying and selling forex before making that first trade.

Forex options and futures traders

For tax purposes, forex options and futures contracts are considered IRC section 1256 contracts, which are subject to a 60/40 tax consideration. In other words, 60% of gains or losses are counted as long-term capital gains or losses, and the remaining 40% is counted as short term.

Key takeaways

Aspiring forex traders might want to consider tax implications before getting started.

Forex futures and options are 1256 contracts and taxed using the 60/40 rule, with 60% of gains or losses treated as long-term capital gains and 40% as short-term.

Spot forex traders are considered "988 traders" and can deduct all of their losses for the year.

Currency traders in the spot forex market can choose to be taxed under the same tax rules as regular commodities 1256 contracts or under the special rules of IRC section 988 for currencies.

A 60/40 tax treatment is often favorable for individuals in high income tax brackets. For example, the proceeds of stocks sold within one year of their purchase are considered short-term capital gains and are always taxed at the same rate as the investor's ordinary income, which can be as much as 37%. When trading futures or options, investors are effectively taxed at the maximum long-term capital gains rate, or 20% (on 60% of the gains or losses) and the maximum short-term capital gains rate of 37% (on the other 40%).

For over-the-counter (OTC) investors

Most spot traders are taxed according to IRC section 988 contracts, which are for foreign exchange transactions settled within two days, making them open to treatment as ordinary losses and gains. If you trade spot forex, you will likely be grouped in this category as a "988 trader." if you experience net losses through your year-end trading, being categorized as a "988 trader" is a substantial benefit. As in the 1,256 contract category, you can count all of your losses as "ordinary losses," not just the first $3,000.

Which contract to choose

Now comes the tricky part: deciding how to file taxes for your situation. While options or futures and OTC are grouped separately, the investor can choose to trade as either 1256 or 988. Individuals must decide which to use by the first day of the calendar year.

IRC 988 contracts are simpler than IRC 1256 contracts. The tax rate remains constant for both gains and losses, which is better when the trader is reporting losses. Notably, 1256 contracts, while more complex, offer 12% more savings for a trader with net gains.

Most accounting firms use 988 contracts for spot traders and 1256 contracts for futures traders. 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.

The rules outlined here apply to U.S. Traders with accounts at U.S. Brokerage firms.

Most traders naturally anticipate net gains, and often elect out of 988 status and into 1256 status. To opt out of a 988 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 988 or 1256 contracts.

Keeping track

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.

This is an IRS-approved formula for record-keeping:

Subtract your beginning assets from your end assets (net)

Subtract cash deposits (to your accounts) and add withdrawals (from your accounts)

Subtract income from interest and add interest paid

Add in other trading expenses

The performance record formula will give you a more accurate depiction of your profit/loss ratio and will make year-end filing easier for you and your accountant.

Things to remember

When it comes to forex taxation, there are a few things to keep in mind:

Mind the deadline: in most cases, you are required to select a type of tax situation by jan. 1. If you are a new trader, you can make this decision any time before your first trade.

Keep good records: it will save you time when tax season approaches. That will give you more time to trade and less time to prepare your taxes.

Pay what you owe: some traders try to beat the system and don't pay taxes on their forex trades. Since over-the-counter trading is not registered with the commodities futures trading commission (CFTC), some think they can get away with it. You should know that the IRS will catch up eventually, and the tax avoidance fees will be greater than any taxes you owed.

The bottom line

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.

How much money can I make forex day trading?

Julie bang @ the balance 2021

Many people like trading foreign currencies on the foreign exchange (forex) market because it requires the least amount of capital to start day trading. Forex trades 24 hours a day during the week and offers a lot of profit potential due to the leverage provided by forex brokers. forex trading can be extremely volatile and an inexperienced trader can lose substantial sums.

The following scenario shows the potential, using a risk-controlled forex day trading strategy.

Forex day trading risk management

Every successful forex day trader manages their risk; it is one of, if not the most, crucial elements of ongoing profitability.

To start, you must keep your risk on each trade very small, and 1% or less is typical. this means if you have a $3,000 account, you shouldn't lose more than $30 on a single trade. That may seem small, but losses do add up, and even a good day-trading strategy will see strings of losses. Risk is managed using a stop-loss order, which will be discussed in the scenario sections below.

Forex day trading strategy

While a strategy can potentially have many components and can be analyzed for profitability in various ways, a strategy is often ranked based on its win-rate and risk/reward ratio.

Win rate

Your win rate represents the number of trades you win out a given total number of trades. Say you win 55 out of 100 trades, your win rate is 55 percent. While it isn't required, having a win rate above 50 percent is ideal for most day traders, and 55 percent is acceptable and attainable.

Risk/reward

Risk/reward signifies how much capital is being risked to attain a certain profit. If a trader loses 10 pips on losing trades but makes 15 on winning trades, she is making more on the winners than she's losing on losers. This means that even if the trader only wins 50% of her trades, she will be profitable. Therefore, making more on winning trades is also a strategic component for which many forex day traders strive.

A higher win rate for trades means more flexibility with your risk/reward, and a high risk/reward means your win rate can be lower and you'd still be profitable.

Hypothetical scenario

Assume a trader has $5,000 in capital funds, and they have a decent win rate of 55% on their trades. They risk only 1% of their capital or $50 per trade. This is accomplished by using a stop-loss order. For this scenario, a stop-loss order is placed 5 pips away from the trade entry price, and a target is placed 8 pips away.

This means that the potential reward for each trade is 1.6 times greater than the risk (8 pips divided by 5 pips). Remember, you want winners to be bigger than losers.

While trading a forex pair for two hours during an active time of day it's usually possible to make about five round turn trades (round turn includes entry and exit) using the above parameters. If there are 20 trading days in a month, the trader is making 100 trades, on average, in a month.

Trading leverage

In the U.S., forex brokers provide leverage up to 50:1 on major currency pairs. for this example, assume the trader is using 30:1 leverage, as usually that is more than enough leverage for forex day traders. Since the trader has $5,000, and leverage is 30:1, the trader is able to take positions worth up to $150,000. Risk is still based on the original $5,000; this keeps the risk limited to a small portion of the deposited capital.

Forex brokers often don't charge a commission, but rather increase the spread between the bid and ask, thus making it more difficult to day trade profitably. ECN brokers offer a very small spread, making it easier to trade profitably, but they typically charge about $2.50 for every $100,000 traded ($5 round turn).

Trading currency pairs

If you're day trading a currency pair like the USD/CAD, you can risk $50 on each trade, and each pip of movement is worth $10 with a standard lot (100,000 units worth of currency). therefore you can take a position of one standard lot with a 5-pip stop-loss order, which will keep the risk of loss to $50 on the trade. That also means a winning trade is worth $80 (8 pips x $10).

This estimate can show how much a forex day trader could make in a month by executing 100 trades:

Gross profit is $4,400 - $2,250 = $2,150 if no commissions (win rate would likely be lower though)

Net profit is $2,150 - $500 = $1, 650 if using a commission broker (win rate would be like be higher though)

Assuming a net profit of $1,650, the return on the account for the month is 33 percent ($1,650 divided by $5,000). This may seem very high, and it is a very good return. See refinements below to see how this return may be affected.

Slippage larger than expected loss

It won't always be possible to find five good day trades each day, especially when the market is moving very slowly for extended periods.

Slippage is an inevitable part of trading. It results in a larger loss than expected, even when using a stop-loss order. It's common in very fast-moving markets.

To account for slippage in the calculation of your potential profit, reduce the net profit by 10% (this is a high estimate for slippage, assuming you avoid holding through major economic data releases). This would reduce the net profit potential generated by your $5,000 trading capital to $1,485 per month.

You can adjust the scenario above based on your typical stop loss and target, capital, slippage, win rate, position size, and commission parameters.

The final word

This simple risk-controlled strategy indicates that with a 55% win rate, and making more on winners than you lose on losing trades, it's possible to attain returns north of 20% per month with forex day trading. Most traders shouldn't expect to make this much; while it sounds simple, in reality, it's more difficult.

Even so, with a decent win rate and risk/reward ratio, a dedicated forex day trader with a decent strategy can make between 5% and 15% a month thanks to leverage. Also remember, you don't need much capital to get started; $500 to $1,000 is usually enough.

The balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

Banks’ income from forex trading jumps 114% to n145bn

$CBN investigates 55 companies over foreign exchange infractions$

As I&E turnover dips 39% to $30.8 bn

By babjide komolafe & elizabeth adegbesan

Notwithstanding the sharp depreciation of the naira and the acute dollar shortage in the economy, income from foreign exchange trading by nigeria’s top banks rose sharply by 110 percent, year-on-year, to N145 billion in the nine months ending september 2020.

During the nine months period, the naira suffered 5.9 percent and 28 percent depreciations in the investors and exporters (I&E) window and in the parallel market respectively.

Also during the period the exit of foreign portfolio investors, fpis, and sharp decline in the nation’s forex earnings triggered by the COVID-19 pandemic, led to acute dollar scarcity in the economy.

Amidst these adverse development, some of the leading banks recorded huge increases in forex income while one of them recorded over 1,000 percent rise in forex trading income during the nine months period.

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Financial vanguard analysis of the financial statements of 12 banks showed that the forex trading earnings were dominated by six banks. These are access bank, gtbank, UBA, union bank, FCMB and stanbic IBTC.

Three other banks, however, recorded decline in their forex trading income namely, first bank, sterling bank and wema bank.

Leading the chart is access bank, which recorded forex trading income of N63.98 billion in nine months ending september 2020. This represented increase of 542 percent when compared with N9.96 billion recorded in the corresponding period of 2019.

Stanbic IBTC bank followed with forex trading income of N44.37 billion in 2020, up by 63 percent, from N27.19 billion in the corresponding period of 2019.

UBA’s size of forex income came third but growth rate was marginal rising by just 1.6 percent to N19.88 billion in 2020, from N19.572 billion recorded in the corresponding period of 2019.

GTB bank, on its part recorded N12.11 billion as forex trading income in 2020, up by 203 percent from N3.99 billion in 2019.

Union bank also increased its forex trading income by 156 percent to N2.28 billion in 2020, from N889 billion in the corresponding 2019.

FCMB’s forex income, though relatively small in size, represented the most astonishing growth rate of 1,024 percent increase hitting N2.26 billion in 2020, from N201 million in the corresponding period of 2019.

First bank suffered the biggest decline in forex trading in the nine months ending september 2020. The statements of the bank’s holding company show it recorded 89 percent decline in its forex trading income to N624 million in 2020, from N5.695 billion in the corresponding period of 2019.

Sterling on its part recorded 65 percent decline in its forex trading income which fell to N128 million in 2020 from N364 million in the corresponding period of 2019.

Wema bank also recorded 4.5 percent decline in its forex trading income which dropped to N142 million in 2020 from N149 million in 2019.

Turnover in I&E dips 39%

Meanwhile, volume of dollars traded (turnover) in the I&E window of the nigerian foreign exchange market fell by 39 percent to $30.8 billion in 11 months ending november 2020, from $57.07 billion in the corresponding period of 2019.

The sharp decline reflects the dearth of forex supply into the window, especially from fpis which fled nigeria and other emerging markets to escape the currency depreciations anticipated in the countries.

Financial vanguard analysis of monthly turnover in the I&E window showed that turnover dropped by six percent in january 2020 to $5.6 billion from $5.3 billion in december 2019.

But in february 2020, turnover rose by 31 percent to $7.34 billion and up again by 3.0 percent to $7.55 billion in march.

However, turnover fell sharply by 88 percent in april to $873.96 million and down again by 30 percent in may to $612.45 million.

The fluctuation intensified through the remaining months of the year as turnover rose sharply by 62 percent in june to $992.12 million but went down by six percent to $937 million in july.

The downward trend continued in august as turnover dipped by 10 percent to $843.97 million only to rise by 129 percent in september to $1.98 billion.

In october, turnover fell by 14 percent to $1.7 billion but rose by 37 percent to $2.32 billion in november.

Financial vanguard analysis of weekly turnover in november showed that $641.7 million was traded in the first week of november. Turnover rose by 9.0 percent to $701.5 million in the second week but down by 0.5 percent to $366.5 million in the third week.

The turnover increased in the fourth week by 56 percent to $572.6 million and stood at $35.15 million on the last day of november.

The naira depreciated by N4.62 kobo in november as the indicative exchange rate of the window rose to N390.25 per dollar on 30th november from N385.63 per dollar on november 2nd, 2020.

How to trade on earnings reports?

Earnings seasons offer unique opportunities for traders. This is the time when the largest american companies publish their earnings reports for the previous quarter. The price can jump or fall by tens of percent after these releases, so traders are able to profit during a very short period of time.

The best thing is that the earnings not only influence the stock’s prices but also increase volatility in the currency pairs. As a result, the entire financial market comes is motion and this time is ideal for trading.

Are you interested? Below you will find more information about trading on earnings.

Do you know that you can trade stocks of the world's largest companies with FBS? Open an MT5 account in your personal area, download the trading terminal and benefit from the US earnings season!

There are 4 earnings seasons a year, each one lasts for several weeks. Earnings are released during the month which follows the quarter (january, april, july, and october). This is when you should check the earnings calendar to learn when to trade.

The theory of trading companies’ earnings is very simple:

If the financial report (quarterly or annual) shows that the company increased profit or sales, investors get interested in it. Demand for the company’s stocks rises and their price goes up.

If the company announces that its profit has declined, its stocks fall on the news.

The secrets of trading on earnings

In practice, there are nuances. You may find many similarities between trading on companies' earnings and trading on the news from the forex economic calendar.

Analysts make their forecasts about the awaited numbers several weeks before the earnings season starts. Usua lly, they predict earnings per share (EPS) and revenue. This information is available on the FBS website ahead of the earnings release. After the forecasts are published, the price gets in motion on the basis of these estimates and investors’ expectations. If the forecast is good, the stock's price goes up. If the prediction is bad, the price declines.

Tip 1. If you want to make a deeper analysis of the company’s report to increase your profit probability, check the website of the company the stocks of which you plan to trade. For quick access, google “[company name] investor relations” and you’ll get the exact time of the earnings release, the previous reports, and the full actual report once it’s out.

The most interesting thing starts when the earnings report is released. The element of surprise is very important: the bigger the difference between the actual reading and the forecast, the bigger the movement of the market. In addition, the so-called “buy the rumor, sell the fact” scenario may happen: the price can fall despite strong numbers if the market has already priced in the good outcome and investors who bought the stock before the release start selling it afterward.

Here's an example of how the price moves on an earnings report. Facebook stocks plunged by about 25% on july 25, 2018. The company’s revenue disappointed ($13.23 billion vs. $13.36 billion per a thomson reuters consensus estimate) and the number of global daily active users turned out to be lower than expected (1.47 billion vs. 1.49 billion, according to a streetaccount and factset estimate). Notice that the stock was constantly rising ahead of the release and got overbought.

Clever traders pay attention not only to the company’s EPS and revenue but analyze the bigger picture. Here are the lifehacks that will help you trade on earnings successfully.

Look at how the stock traded during the last couple of weeks. Compare the dynamics of the price with analysts’ forecasts in the earnings calendar. If the price rose too high, you might get ready to sell the stock on the news. If the price fell too low, you can prepare for buying.

Check how the market reacted after the previous releases. Each stock has its own peculiarities and you can get valuable insights from studying history.

Have a look at RSI. This technical indicator shows whether the market is overbought or oversold. If the RSI is high, the stock is overbought and may decline in any case. The opposite is when the RSI is too low. Oversold stocks are considered to be especially attractive for buying.

Read through the media articles. If everyone is obsessed with a particular company and expects a tremendous profit, the stock’s price is likely too high and is vulnerable to a selloff. If everyone berates a company, its stocks can be undervalued.

Tip 2. The news from large companies has a great impact on the entire american stock market. So, if the stocks of microsoft or amazon jump, S&P 500 will likely go up as well. In addition, the stocks can influence the USD exchange rate as well. Rising stocks can either increase demand for the greenback as investors will await the federal reserve’s rate hike or encourage risk appetite and demand for higher-yielding currencies like the AUD and the NZD. The reaction of the forex market will depend on the recent drivers of the USD.

All in all, if the earnings forecasts came true, the price of a stock will likely reverse in the opposite direction compared with its dynamics during the previous two weeks. If the reading overshoots/undershoots the forecast on a big scale, the overbought/oversold market will correct up if the surprise is positive or down if the data disappoint.

Here are the dates of some of the most exciting earnings reports of 2019:

Amazon.Com inc. - jan 31, july 27, oct 10

Facebook inc. - jan 30, july 24, oct 30

Alphabet inc. - feb 4, july 24, oct 26

Pfizer inc. - jan 29, july 30, oct 29

Visa inc. - jan 30, july 26, oct 31

Now you are ready to make money on earnings! Make sure that you have set up MT5 and start planning your trades!

Can forex trading make you rich?

Can forex trading make you rich? Although our instinctive reaction to that question would be an unequivocal "no,” we should qualify that response. Forex trading may make you rich if you are a hedge fund with deep pockets or an unusually skilled currency trader. But for the average retail trader, rather than being an easy road to riches, forex trading can be a rocky highway to enormous losses and potential penury.

But first, the stats. A bloomberg article in nov. 2014 noted that based on reports to their clients by two of the biggest forex companies at the time—gain capital holdings inc. (GCAP) and FXCM inc.—68% of investors had net losses from trading currencies in the prior year. While this could be interpreted to mean that about one in three traders does not lose money trading currencies, that's not the same as getting rich trading forex.

Key takeaways

Many retail traders turn to the forex market in search of fast profits.

Statistics show that most aspiring forex traders fail, and some even lose large amounts of money.

Leverage is a double-edged sword, as it can lead to outsized profits but also substantial losses.

Counterparty risks, platform malfunctions, and sudden bursts of volatility also pose challenges to would-be forex traders.

Unlike stocks and futures that trade on exchanges, forex pairs trade in the over-the-counter market with no central clearing firm.

Note that the bloomberg numbers were cited just two months before an unexpected seismic shock in the currency markets highlighted the risks of forex trading. On jan. 15, 2015, the swiss national bank abandoned the swiss franc's cap of 1.20 against the euro that it had in place for three years. as a result, the swiss franc soared as much as 41% against the euro on that day.

The surprise move from switzerland's central bank inflicted losses running into the hundreds of millions of dollars on innumerable participants in forex trading, from small retail investors to large banks. Losses in retail trading accounts wiped out the capital of at least three brokerages, rendering them insolvent, and took FXCM, then the largest retail forex brokerage in the united states, to the verge of bankruptcy.

Unexpected one time events are not the only risk facing forex traders. Here are seven other reasons why the odds are stacked against the retail trader who wants to get rich trading the forex market.

Excessive leverage

Although currencies can be volatile, violent gyrations like that of the aforementioned swiss franc are not that common. For example, a substantial move that takes the euro from 1.20 to 1.10 versus the U.S. Dollar over a week is still a change of less than 10%. Stocks, on the other hand, can easily trade up or down 20% or more in a single day. But the allure of forex trading lies in the huge leverage provided by forex brokerages, which can magnify gains (and losses).

A trader who shorts $5,000 worth of euros against the U.S. Dollar at 1.20 and then covers the short position at 1.10 would make a tidy profit of $500 or 8.33%. If the trader used the maximum leverage of 50:1 permitted in the U.S. (ignoring trading costs and commissions) the profit is $25,000, or 416.67%.

Of course, had the trader been long euro at 1.20, used 50:1 leverage, and exited the trade at 1.10, the potential loss would have been $25,000. In some overseas jurisdictions, leverage can be as much as 200:1 or even higher. Because excessive leverage is the single biggest risk factor in retail forex trading, regulators in a number of nations are clamping down on it.

Asymmetric risk to reward

Seasoned forex traders keep their losses small and offset these with sizable gains when their currency call proves to be correct. Most retail traders, however, do it the other way around, making small profits on a number of positions but then holding on to a losing trade for too long and incurring a substantial loss. This can also result in losing more than your initial investment.

Platform or system malfunction

Imagine your plight if you have a large position and are unable to close a trade because of a platform malfunction or system failure, which could be anything from a power outage to an internet overload or computer crash. This category would also include exceptionally volatile times when orders such as stop-losses do not work. For instance, many traders had tight stop-losses in place on their short swiss franc positions before the currency surged on jan. 15, 2015. However, these proved ineffective because liquidity dried up even as everyone stampeded to close their short franc positions.