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.
When you invest in financial markets, you have to pay a small term capital gain tax, if you take profit from a security within one year. Small term capital gains are taxed at your current tax rate.
And if you hold the security for more than one year before you take profit, you will have to pay long term capital gain tax. Long term capital gains are taxed at a rate of 15% only.
But, in case of forex markets, it doesnt matter if you take profit one minute after you enter a trade, one month or one year. 60% of your profits will be taxed as long term capital gains and only 40% will be taxed as small term capital gains.
Lets make it clear with an example. Suppose you make $10,000 investment in stocks and $10,000 investment in forex. Suppose your tax bracket is 33%. And lets suppose you made a profit of $10,000 in both stocks and forex each in six months.
Since your stock investment was less than six months, your profit will be treated as a small term capital gain. That means you will have to pay your current tax rate of 33% which will be (10,000)(0.33)=$3,300 and your profit after taxes will be only $10,000-$3,300= $6,700.
It doesnt matter whether you took profit in six months or one year in forex, 60% of your profit will be treated as long term capital gain and 40% will be treated as small term capital gains. It means 60% of $10,000 will be taxed as long term capital gain at only 15% which is (0.6)(10,000)(0.15)=$900.
40% of your profits in forex will be taxed as small term capital gains at your current rate of 33%. It calculates to (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 on forex investment like that can add up quick. Profits can accumulate quickly by investing in the Forex market within your IRA or other tax-deferred retirement account.