Quietly Forexing

I haven't written about my Forex trading for quite some time. I realized that this evening as I updated the spreadsheets I use to track that stuff, so I figured a quick post about where I'm at with it is in order.

Up until recently, I've been focused on collecting daily interest income from carry trades. And then I filed my taxes. Let's just say that collecting large amounts of interest for a year without Federal income theft withholding makes for some nasty surprises come April 15th. Interest income is taxed as straight income, which as you move into higher marginal tax rate brackets can stack up very quickly. So I've been changing gears and going more for capital gains, which under certain filing rules are taxed at long and short term capital gains rates - 60% of your annual gain is taxed at the long term rate, with the remaining 40% taxed at the short term rate, the amount of time you actually held currency positions not being a factor at all. This provides Forex traders with a unique advantage compared to more traditional trading in such things as stocks and bonds, and it is certainly a better way to generate income from Forex than interest.

This has led me to begin taking positions for which I actually must pay daily interest instead of collecting it. This can be a bit irksome after getting accustomed to receiving interest every day, but it does help me to lower my tax bill somewhat. It also gives me the flexibility in my trading to not have to constantly swim against the current tide in pursuit of interest income: the U.S. Dollar is showing strength because the global financial storm is causing investors around the world to seek shelter in U.S. treasuries and dollars. There are no currency positions I can take long the USD that I am aware of from which I would receive interest, but since I'm not concerned about that so much anymore, I can ride the flight to safety wave for capital gains instead. I still have plenty of interest-positive Dollar short positions open right now, but I'm just leaving them alone until this trend begins to reverse, at which point I'll be looking to enter more of those positions to average down and get them into the black again quicker.

I'm a long way from being the next Soros, but I'm working on it... minus the idiotic political ideals he holds, of course.