ENTREPRENEUR

If you’re currently an active trader and are looking for a good resource to hone your trading skills, this online trading magazine is worth your while: http://www.tradersonline-mag.com/.  In addition to having some really good, informative, and comprehensive articles on a variety of quantitative and technical trading patterns, most of the writers are British, which means you know it’ll be extremely well-written

One of the first days where everyone has been around… fun times

This is a re-posting of an article from Intigril, my site on investing, trading, and personal finance. To view the original article on Intigril, click here.

Buckle down, and don’t worry

Image from mikekorn

After a year of profitable research, analysis, buying, and selling, you may be feeling pretty good about yourself.  You may have turned a few hundred trades into an annual income that you use to sustain yourself – or you may have merely made a few tweaks to long-term positions that you hope to rely on in retirement.  But now it’s time to pay the piper.

Chances are, as an active trader you probably didn’t instruct your brokerage to withhold any of your profits for taxes, which means you’ll have to pay it all off by April 15.  On top of that, you’ll have to jump through a million hoops just to file any paperwork that tells you how much you owe.  This is not a fun time to be a trader.

But don’t worry, once you know what the IRS actually wants from you, it’s all fairly straightforward, and with a little bit of research and due diligence (traits you should have in abundance if you’ve been trading for a while), you’ll have your taxes done in no time.

The paperwork

Image from MeHere

To get started, all you’ll need is good tax preparation software.  I’ve been using TurboTax for the past few years, but you may have your own preferences.  Regardless of which package you use, you’ll likely need to upgrade to a version that will allow you to handle the sale of capital assets (said differently, you’ll need something that lets you record your investments).  With TurboTax, this was the Premium version.

After you fire up the software and enter in the basics, you’ll need to report the boatloads of money that you made last year.  When you get to the investments section of your return, your software package should provide you the option of filling out summary information and supplementing it with an attachment that lists out your trades.  Here are a few important things to keep in mind.

1099-B

Your broker will provide you with a summary of your basic gains and losses on the 1099-B.  It will show the long and short-term losses that you incurred over the year, and will give you a breakdown of what your broker did and did not report to the IRS.  Unfortunately, many brokers won’t be able to properly match all of the opening and closing trades you did throughout the year, particularly if you traded a lot of options, which means that many times the 1099-B will only give the gains/losses for a small subset of your trades, and will list every other trade you made throughout the year as a line item.

Reporting your trades

The IRS wants a record of every trade you made that’s not included in the summary on your 1099-B.  They provide Form 8949 on which you can list the details of each of your trades, but if your broker is any good, you’ll have received a list of all of your trades that you can submit in lieu of writing out all of your trades on Form 8949 (as long as it’s in a similar format as the form).

Even though you can submit the statement provided by your broker, you’ll still need to record the total gain and loss from each of your short-term and long-term trades on the first line of Form 8949, which you’ll need to download, print, and mail in to the IRS after they accept your return.  If you had multiple brokers throughout the year, you’ll need to list the gains and losses on a separate line for each one.  In addition, you’ll need to attach Form 8453, which your tax software should provide for you.

Switching brokers

If you switched brokers at any point during the year, like I did, you’ll have an even bigger mess on your hands.  If you had any open positions when you switched to your new broker, you’ll need to reconcile the proceeds from any sales you made with your new broker with the cost basis incurred from the old broker.  You’ll probably have to do this by hand, and report it on Form 8949 as needed.

Long-term investments

Even if you’re an active trader, you may have several long-term investments which won’t need to be reported on Form 8949, or may be reported on Form 1099-B, which your broker provides you.  Examine your investments and trades to see if any of them qualify.

Wrapping up

Those are the most important things to keep in mind when preparing your taxes.  I should note that I’m not a certified tax accountant, but I did do a lot of reading through the IRS’s instruction manual for how to deal with capital gains and actively traded securities.  I’d recommend you do the same, you can find the guide here: http://www.irs.gov/pub/irs-pdf/i1040sd.pdf.

This article was just a quick introduction to taxes for traders.  There are a lot of details and other issues that I haven’t mentioned here, so if you have any questions about your particular situation, don’t hesitate to read through the IRS’s guides, or even call their help line.

Good luck, and hopefully you don’t have to give away too much of your hard-earned profits!

This is a re-posting of an article from Intigril, my site on investing, trading, and personal finance. To view the original article on Intigril, click here.

Image from Travel Aficionado

History

Image from Wikipedia

The date – May 17, 1792.  The place – New York City, 68 Wall Street, outside under a buttonwood tree.  The event – 24 stock brokers have just signed an agreement to create the ancestor of what is today’s largest stock exchange by total company value.

That’s right, you guessed it, it’s the birth of the New York Stock Exchange (NYSE), and if you’re curious as to what it actually means to buy and sell stocks, how they’re sold, and who’s selling them, you’re in the right place.  In the last article, I showed you what a stock actually is – a share of ownership in a company.  It’s important to keep in mind that, officially, each share of stock is represented by an actual piece of paper that outlines the details (company name, proof of ownership, etc) of the stock that you own.  These days, these records may be held electronically, but back in the ol’ days, they were actual products that were bought and sold for money.

Anyone that wanted to buy or sell stock would instruct their broker to go down to the physical location of the stock exchange and come up with a favorable deal.  These brokers would then exchange stock certificates for cash and either provide them to their clients or hold them until their clients needed them.

Trading today

Today, things are a bit different.  The NYSE has expanded, and though there’s still some human interaction left in the trading process, most deals are done electronically on a vast computer system.  In addition, the NYSE isn’t the only player in town anymore.  The NASDAQ is a fully electronic exchange that matches buyers and sellers and provides a centralized location for trading stocks (not to mention other financial products).  It’s the second largest exchange in the US, and it’s known for housing mostly tech stocks.  These are the two big exchanges that you should know about, though it may also help to keep in mind the American Stock Exchange, which is the third largest exchange, though these days it doesn’t focus too much on stocks.

There are a lot more brokers now, too.  And you’ll probably never see a stock certificate in your life, but the basic idea is the same.  Exchanges provide a way for buyers and sellers to trade stocks quickly and easily.

So who’s doing all the trading?

Image from Redwood Photography

The total market value of all of the companies in the NYSE alone is around $18 trillion (after they merged with the electronic exchange Euronext).  On top of that, there are around 2 billion shares traded every day, amounting to hundreds of billions of dollars of transactions.

Who’s doing all this trading?

Well, obviously there are a lot of individual traders, but the majority of trading is done by banks and institutional investors – or the big companies that are hired to manage your pension funds, 401(k)s, the endowment funds of big schools like Harvard and Yale, sovereign wealth funds that manage the money of entire countries, hedge funds, mutual funds, and any other large organizations that are entrusted with the savings of millions of working professionals for safekeeping.

These companies are all employing their own investment strategies, analyses, calculations, opinions, and most importantly, emotions, to try to find stocks that will help them grow their capital.  If any single of of them puts in a large order to buy or sell stock, it will flood the market and can significantly move prices up or down.  In the next post, I’ll talk about what makes up the price of a stock, but for now, it’s enough to know that these guys play a big roll in the whole process of supply and demand.

Market making

Image from watcharakun / FreeDigitalPhotos.net

There’s one last thing you should know about stock trading, at least for now.  When most individuals place an order to buy or sell a stock, they’re actually going through an intermediary – or a market maker.  These are people (or companies) that are required to “provide a market” for stocks buy buying and selling at the prices that they quote the public.  In exchange, they get preferential treatment in the markets whenever they place their own orders.

Market makers will always sell stock at a slightly higher price than they buy it, which brings them a small profit on every transaction they do.  Good traders or computer programs that do this thousands, or millions, of times a day can generate huge amounts of money, so market making is a pretty lucrative business.

When you put in an order to buy or sell a stock, chances are it’s going from you to your broker to a market maker who may or may not match you up with another buyer or seller in the market.  If there’s no match, the market maker will just take your order and wait until later in the day when he can offset his new position, and in a market that’s trading billions of shares a day, that’s usually not too hard to do.

What’s next?

At this point, you know what stocks are, why companies sell them, why people trade them, and how they’re bought and sold.  But the most important part is yet to come.  In the next article, we’ll tell you what stock prices mean and why they can move so far up and down in such short timespans.  Read on!

This is a re-posting of an article from Intigril, my site on investing, trading, and personal finance. To view the original article on Intigril, click here.

Image from kenteegardin / seniorliving.org

Your plan

Over the past 7 articles, we’ve given you a lot of information on how to manage your finances. If it all seemed a bit overwhelming, this article should help clear things up. Below, we’ll provide you with a summary plan that should help you make sense of it all.  If you take care of the items below, you’ll be on solid financial ground and you’ll be able to start generating even more money right away.

1. Get your insurance needs out of the way

   If you’re working for a company, you probably have the option to sign up with its insurance providers to handle almost all of your insurance needs (medical, dental, vision, life, disability, etc). Hopefully, you got everything squared away when you were first hired, but if you didn’t have that chance, contact your HR representative and see what you can take care of now. Go out and buy home owner’s or renter’s insurance if you don’t already have it.

   If you’re not working for a company, there are a variety of providers that will sell you independent insurance coverage, you may have to pay more than if you were getting it through a group plan, so shop around and find the plans that best suit your needs.

2. Figure out your expenses

   Calculate what you’re going to need to survive each month. Add to that any monthly debt you need to pay off. This is the minimum amount that you should be depositing into your checking account each month. Ideally, you’ll have quite a bit more than this coming in, but try to shoot for at least 2-3 times your monthly expenses.  If you’re having problems scrounging up enough to meet that amount, it’s time to make some changes.

3. Deal with your debt and your tax-free retirement accounts

   In step 2, you calculated the amount that you’ll need to cover your debts. Pay those off on time every month. With any money that’s left over, figure out how much of it you’d be willing to give up each month and then have it automatically withdrawn from your paycheck and deposited into a tax-free retirement account (401K, Roth 401K, 403B, etc).

4. Build up your emergency fund while keeping your checking account healthy

   Whatever you have left should go towards building up your emergency fund. It may take you several months to a year of saving before you’re able to build up your account all the way, but stick with it until it’s done.  You’ll sleep easier, and that has to be worth it.

5. Plan for the future

   At this point, you’ll have be on a solid financial foundation. Your next step is to look at what you’re going to need for the future. If you expect to buy a new car, put a down payment on a house, or make another large purchase, you should set up a separate savings account that you’ll contribute to every month as you save up specifically for that purchase. If you don’t see any big expenses coming up, you should start trading or investing. The guides on this site will help you get started with growing your money.

After a year or two of going through this plan, you should be able to reduce your debts, maintain a solid emergency fund, have enough in your checking account to take care of expenses, and be on track for an early retirement.  On top of these basics, if you can cover all of your expenses with a good credit card that provides cash back or other rewards while managing to pay off your full balance every month, you’ll be all set.

More resources

• If you want some more help when it comes to money, we’d recommend buying The Wealthy Barber. This is one of the best books on personal finance, and it’s actually a pretty good read (unlike most other financial books). If you’re serious about getting your finances in order, reading this book is mandatory. It’s the best $10 you’ll spend.
• You should also check out Ramit Sethi’s blog, I Will Teach You To Be Rich.  It has a whole slew of great articles on personal finance, and if you like a snarky comment here and there, you’ll enjoy his writing style too.
• Passive Panda is also a nice, new(ish) resource that can help you improve your financial situation by providing you with new ideas to generate income and make money.
• Get Rich Slowly is another good resource for personal finance articles.

And finally, if you’re ready to start making extra money every week by trading options, there are a ton of articles on Intigril just waiting for you to read them, learn, trade, and be free.  Good luck with your personal finance goals, and we hope to see you trading soon!