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Who are traders?

A trader is an individual who involves him/herself with the procuring and dumping of assets in any financial market. This can be achieved for either him/herself, on behalf of another person, or another institution. The question that may come to many people’s mind is that, then what’s the difference between a trader and investor? The short answer evolves around the duration for which the person holds the assets. Investors have a tendency to look at the bigger picture and look at this as a long-term by which the investor holds an invest until they need the money back they invested. On the other hand, traders tend to hold the asset for a short-term based on the trends.

A small recap

1. Traders use their knowledge to procure and dispose of short-term assets for themselves or an institution.
2. In contrast to traders, investors seek long-term capital gains as opposed to the short-term mindset of traders who look for short-term profits.
3. An acute drawback of trading involves the capital taxes which are applicable for trades and the costs associated to paying multiple commission rates to brokers.

Difference between traders operating individually or at an Institution

A trader that operates for an institution generally possess trading rooms where employees exchange (buy/sell) a wide range of products on behalf of the company. These individuals have a caped amount of how large of a position he/she can take. The company highlights the do’s and don’t and what line not to cross before the position must be filled out.

But traders who operates individually and who are their own account holder work from a small office or from home, use a discount broker to facilitate electronic trading platforms to perform the task in hand.

Additionally, a trader can involve him/herself with the buying and selling of currencies such as dollars and other forms of currency such as dollars, pounds, euros, yes, and Swiss francs.

Some drawbacks of Short-term Capital Gains Tax

A trader who specializes in short-term trading are usually taxed at trader’s ordinary income tax rate. In Canada, 50% of the value of any capital gains are taxable, the trader sell the investment at a higher price than the price of buying. The trader should add 50% of the capital gained to his/her income.

On the other hand, Long-term capital gains are taxed but art a lower rate of 20%. But the owner is required to hold the trading for a period of one-year.

Traders have come up with a workaround to reduce their tax liabilities from short-term trades. For example; traders can write-off their expenses that were utilized for their trading setup. Much like a small business owner or freelancer. The other option is for traders is to value their entire trades for a particular year and claim deductions for the losses they incurred.