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Forex trading allows you to have the best of both worlds. When stock prices go up, you can benefit from forex trading. When stock prices go down, you can profit from forex trading.

You can profit from forex trading whether there is inflation or deflation. You can profit from forex whether interest rate goes up or down.

For any investment in financial markets, you have to pay a capital gain tax. It can be a short term capital gain tax in case you take profit from a security within one year, taxed at your current tax rate.

And the capital gains will be considered as a long term gain if the security is held for more than one year before you take profit. In case of long term capital gain, you will be taxed at a rate of 15% only.

But if you invest in forex markets, 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 a currency for one minute, one hour, and one month or more.

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, 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 will be taxed as short term capital gains at your current tax rate of 33%. This is (0.4) (10,000) (0.33) = $1,320.

The total tax that you pay on forex investment will be $900+$1,320=$2,220. Compare this with $3,300 that you paid on stock investments.

The tax savings on forex investment like these can add up fast and accumulate into a sizable amount in your IRA or other tax deferred accounts.

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