The History of USD: The United States Dollar
Today, the dollar is one of the strongest currencies in the world. It’s officially in use in the United States and has been adopted by other countries. Somewhere between ½ and ⅔ of the circulated U.S. currency is outside the U.S.
But how did the U.S. dollar make its way to the top?
The currency as we know it today doesn’t show up until the 20th century, but money in America has a much longer history. Read more to find out where the dollar came from and how it dominated the world’s markets.
Early Documentation of US Paper Bills – 1960
The oldest records of U.S. paper currency go back to the 1690s when the Massachusetts Bay Colony issued colonial notes to finance military expeditions. Other colonies soon followed and produced their own bills of credit.
Continental Currency – 1775
In 1775, the American Revolutionary War became inevitable. The Continental Congress issued a new form of paper currency, Continentals, to fund the military expenditures.
The Continental currency encountered several issues. One of them is that a large amount of money was being printed without bullion backing. This, and the emergence of counterfeits, would lead to the currency’s massive devaluing.
Congress stopped producing Continentals in 1779, and by the time the war ended, they were considered near worthless.
Adopting the Dollar Sign – 1785
Although Continental was denominated in dollars, it lacked the familiar dollar sign we know today. The Continental Congress officially established the dollar as the U.S. currency in 1785, with the symbol derived from the Spanish American figure for pesos.
Simultaneously, Congress decided that the money would be based on a decimal system – 100 cents to a dollar.
The Bank of the United States – 1791
After the Revolutionary War, the U.S. was in financial chaos. By 1785, Continentals had depreciated so much that people no longer accepted them as payment.
Alexander Hamilton proposed a national bank to stabilise the economy and establish financial order. In 1791, the Bank of the United States was founded in Philadelphia.
Coinage Act of 1792
The 1792 Coinage Act formed the U.S. coinage system and the first U.S. Mint. The act laid the foundation for the nation’s future monetary system.
The currency circulated as only coins for decades, but the need for financing growth brought about the return of paper currency.
The Return of Dollar Bills
By the 19th century, the U.S. decided to give paper notes another go. In the 1860s, new bills were printed out to help finance the Civil War. These notes were green on the back; thus, they were called “greenbacks”.
The inking, treasury seals, and engraved signatures were meant to prevent counterfeiting.
Although greenbacks had government backing, they couldn’t be redeemed for gold or silver. However, the Specie Payment Resumption Act of 1875 restored the gold standard and ensured that all paper money could be exchanged for gold by 1879.
The Federal Reserve Act – 1913
The 1913 Federal Reserve Act led to the establishment of the Federal Reserve System as the nation’s central bank. It gave the Federal Reserve the ability to print money and oversee monetary policy in an attempt to establish and ensure economic stability.
The U.S. Dollar as the Reserve Currency
In the 20th century, war had left Europe in disarray and made way for the United States to emerge as the dominant economic power. In 1944, the Bretton Woods Agreement was formed, and the U.S. dollar became the world’s reserve currency.
The dollar was pegged to gold. In turn, many foreign countries tied their currencies’ exchange rates to the dollar in an attempt to stabilise them.
However, the U.S. continued to print more money that exceeded the backing of gold reserves. Since paper dollars continued to flood markets, foreign countries became cautious and started to convert dollar reserves into gold.
Abandoning the Gold Standard
Following several runs on the dollar, in 1971, President Nixon enacted a set of economic policies. The Bretton Woods system wasn’t formally abolished; however, the U.S. abandoned the gold standard and no longer converted dollars to gold at a fixed value. This led to the current system of fiat currency and floating exchange rates.
The U.S. Dollar in the Market Today
Historically, governments, large companies, and hedge funds were the only ones engaging in foreign exchange with the dollar. But today, any interested individual can trade currencies.
You can get started this moment with Fair Forex – one of the FX market’s most trusted and fair brokers. Get quality broker services that work in your favour with complete transparency. For more questions, visit our help centre.
Forex Wisdom to Remember
The forex market is the largest and most liquid – trading reached $6.6 trillion a day in 2019. Getting involved with FX markets is easy, but that doesn’t mean starting will be simple.
Beginners and experienced traders alike can struggle if they’re not prepared with the proper knowledge and methodology. In this article, we’ll talk about the best tips to keep in mind and follow when it comes to forex trading that can be a helpful tool for all traders.
It’s a bad idea to go in blind when trading currencies. You’re not expected to be an expert immediately, but you should know the basics and do your due diligence. Inform yourself about the FX markets, your preferred currencies, and the factors that affect prices.
Remember that being informed also means staying informed. Keep up with world events and changes in market conditions and regulations.
Make a Plan
Traders shouldn’t enter markets unprepared – this applies to knowledge and strategy. You must lay out your trading objectives and know how you hope to achieve them.
Your approach will be influenced by market analysis, risk management, and personal attitude. The trading style you go for should suit your personality so that you’ll avoid stress and maximise your chances of success.
So, before you start, carefully consider your options. How much time will you dedicate to your trading efforts? Will short-term or long-term trading work best for your preferences and circumstances?
A thought-out plan is crucial as it allows you to monitor and measure your performance and know if what you’re doing is working.
Practice Makes Perfect
Your trading plan can look good on paper, but the only way to know how it’ll work is by doing it. Traders can create a demo or practice account to test a platform and market conditions without risking real money.
It helps you better understand your plan and what will likely happen in an actual money trade. On top of that, it’s an excellent way to get familiar with a trading platform’s features before you jump in.
Consistency is Key
If you’ve devised a practical plan, you must be disciplined and stick with it. There is a fine line to walk when it comes to this. You should be consistent in your methodology and strategy and leave room for adapting to the changing markets.
Keep Records and Improve Strategy
Recording your trading activity is the best way to identify and learn from your mistakes. It’s essential to note dates, profits, losses, and influence factors – the reason behind the trade, emotional state, etc.
Tracking performance can offer valuable insight into your strategy and mindset as a trader and help you distinguish between useful and damaging patterns.
Risk and Reward
You need to know the level of risk you’re willing to take as a trader. You can use a risk-reward ratio to help you determine if a profit can be made long-term and if you’re comfortable taking on the risk.
Stop-loss orders can be used to mitigate risk and limit loss. This is an important risk-management tool to help you in the forex markets.
Your Outlook on Trading
Forex trading isn’t a get-rich-quick scheme. It’s work and requires a similar attitude and dedication you’d put into a job. Don’t be blinded by short-term wins; the goal is to succeed in the long run.
The best tip when engaging in forex trading is to put your emotions to the side. Whether it’s a win or a loss, an extreme reaction can lead you to bad decisions. You’ll experience a lot of both, so face any result calmly and rationally – don’t forget the big picture.
Trading Money is Risky
Never forget that even when you do your best to mitigate risk, you can’t eliminate it. You can lose the money you use to fund your account, so manage your finances well. For example, you should never use the money you need for living expenses on trades. Besides the risk of losing the money, it’ll make you overly emotionally invested, which can lead to bad outcomes.
Find a Reliable Broker: Fair Forex
Finding a reputable broker you can put your trust in is crucial, especially when it comes to currency exchange. The FX market is massive and global, making it more prone to scams and fraud. Since it’s less regulated than other financial markets, finding a safe and encouraging place to engage in trade can seem difficult.
Fair Forex is an online broker where you can expect fairness, honesty, and transparency. Join us to trade more confidently. Start by getting a free demo today.
Is Forex Trading Like Gambling?
It’s easy to dismiss forex trading as just another form of gambling. After all, both activities involve risking capital with hopes of future profit. But while currency trading and gambling share similar characteristics, they are entirely different.
For instance, gambling is typically a short-lived activity, while forex trading is a long-term venture that demands a certain level of skill and experience as well as a methodical approach. Equating the foreign exchange market to gambling is not just illogical but also dangerous, especially for beginner traders who are still learning to control risks and make profits.
In this guide, we explore the differences between forex and gambling, as well as common mistakes you should avoid when trading currencies.
Anyone can take part in both gambling and currency trading. However, the forex market often involves bigger players, not just retail traders and individual investors. Large financial institutions from all parts of the world also participate in forex trading.
See below a list of the major players who are trading in the foreign exchange market every day:
- Commercial banks
- Sovereign wealth funds
- Retail traders
- Retail brokers
- Real money
- Proprietary trading firms
- Prime brokers
- Money transfer/remittance companies
- Hedge funds
- Governments and central banks
- Foreign exchange fixing
- Commercial companies
With such big players involved, you can rest assured that currency trading is 100% safe and legal. Some types of gambling, on the other hand, often include many legal hurdles and are prohibited in some countries.
While the forex market comes with its own uncertainties, technology allows traders to make more informed decisions and prevent significant losses. A wide range of technical analysis tools and software is now available to help you time and plan your trades with greater efficiency.
Some tools also let you observe and analyse market trends for several days or even weeks before entering a trade. This proves that you cannot rely on mere luck in real profitable forex trading. You need analytical skills and proper market research to make successful trades.
However, in gambling, there are no trends to study or tools that can inform your choices. With gambling, everything is left to chance and pure luck, which increases the probability of loss.
As with any financial market, forex trading incurs risks, losses, and uncertainties. This is why it’s essential to always be prepared for whatever happens. Knowledge, practice, and strategy are crucial to forex success.
Often, traders who face prolonged losing streaks are those who made trades without any technique or analysis. Some of the most common trading strategies include swing trading, day trading, position trading, and forex scalping.
Before entering any money, find the correct pairs to trade first and carefully calculate potential risk against potential reward. Make a proper analysis and look at the market objectively.
Gambling doesn’t require much strategy or evaluation beforehand. Currency trading still expects you to have a grasp of global markets and politics, and to be successful.
Common Mistakes Forex Traders Make
If you want to be a successful trader, watch out for these common slips and errors.
Ignoring Global News and Economic Data
Global news events such as GDP growth rates, elections, political turmoil, treaty negotiations, and central bank decisions can significantly impact currency markets.
Paying attention to global news will help you spot and understand trends in currency pairs. With this knowledge, you can make more informed trading decisions.
Trading Without a Stop Loss
Limit potential losses in a turbulent market by having a stop-loss order for every trade you make. A stop-loss order automatically closes a trade position at a limit price you’ve specified. It prevents you from losing more than you can afford.
Choosing the Wrong Broker
Entrusting money to a forex broker is one of the biggest risks you will have to make. Take time in choosing a broker. Review their regulatory compliance, account offerings, customer service, and currency pairs offered.
It’s better if your potential broker offers a free demo, so you’ll know what to expect when trading with them.
Work with a Reputable Broker
Choose a broker that offers a reliable and user-friendly platform where you can make a trade with ease. With spreads from just 0.0 pips and Free deposits into client segregated accounts, Fair Forex will help increase your chances of success in the competitive forex market.
Request a free demo today.
Is Forex Trading a Good Way to Make Money?
With approximately 10 million traders all over the world, forex is the largest and one of the most actively traded markets in the world today. In fact, the market is valued at $2.409 quadrillion in 2022, with an average of $6.6 trillion traded each day.
Investing in forex can be extremely profitable and rewarding. However, income level is varied and profits depend on several factors. Like with any financial market, trading currencies involves a lot of complexity and uncertainty, especially in the beginning. While it can be difficult to estimate how much you’ll earn as a novice trader, there are several ways you can reduce risks and maximise your rewards.
Despite the unpredictability of the market, what makes forex particularly attractive for beginner traders is its high liquidity and relatively low costs. It’s also easy to enter the market with round-the-clock sessions and low capital requirements.
In this guide, we discuss how forex works and how you can maximise profits through trading currencies.
What is Forex Trading, and How Does it Work?
The forex market operates similarly to any other market that trades assets such as bonds, shares, or commodities. The main difference is that forex trading is done in pairs. When you sell one currency, you purchase another. Profits are earned if the value of the currency you buy rises relative to the currency you sold.
FX trading is not done in a central location. Instead, it’s run by a global network of banks across four major trading centres in varied time zones: New York, Tokyo, Sydney, and London. Since the market isn’t centralised, you can trade currencies 24 hours a day, making it a very liquid market.
Leverage is commonly used in the currency market. It enables you to buy more currencies even with a limited amount of capital by borrowing money typically from a broker.
Suppose you only have $1,000 worth of capital funds. You can still buy $10,000 of foreign currencies with a brokerage firm lending you the remaining funds. Through leverage, you can trade larger positions and magnify potential profits.
Can Trading Currencies Be Profitable?
The short answer is yes. FX trading has the potential to be highly profitable for active traders because of diverse markets and the availability of high leverage. You don’t need much capital to get started, either. You can even begin with as little as $500 to $1,000. A dedicated forex day trader with a good strategy and leverage can earn anywhere between 5% and 15% monthly.
However, returns don’t happen overnight. The FX market usually demands a lot of patience, discipline, and a system in place to manage risk.
How to Maximise Your Forex Earnings
Invest small amounts when you’re just starting out, so it won’t hurt as much if you do lose money. You can then use the experience to determine what went wrong with your trade and how you can improve in the future.
Novice traders who buy more than they are prepared to lose usually end up exiting the market early due to huge losses. Remember, the greater your risk, the greater your potential to fail, as well.
Forex requires continuous learning. There are a lot of systems, practices, and concepts to learn, such as margins, PIP, lot size, bid prices, and many others.
Likewise, it’s important to stay updated with current events. Global and political events have a significant impact on the value of currencies and the FX market as a whole. Knowing what’s going on in the world will help you make better-informed trading decisions.
Practice on a Demo Account
Before you begin trading real money, test out strategies using a demo account. A demo account simulates the trading experience without risking any real money. This way, you can familiarize yourself with the trading software and get a feel of how the market works.
Work with a Trusted Broker
Forex brokers help you connect with the banks buying and selling currencies. They also help beginners learn the ropes and avoid common trading mistakes.
At Fair Forex, we offer regulated broker services that are fair, transparent, and trader-focused. Our commissions and spreads are one of the industry’s lowest. We also provide you with free signals, indicators, and reliable support every step of the way.
Increase your profit potential and be a successful trader by working with a forex broker with the right knowledge, experience, and attitude. Get started with Fair Forex now.
Is Forex Trading a Zero Sum Game?
Foreign exchange trading is popular among people who want to expand their margin of profitability. Its lucrative space offers just enough positive outcomes, and the returns are frequently immediate. As much as it is viewed as a potent space for profit, however, it can also bring serious financial stagnation.
This claim is specifically valid if we look at forex using the concept of a zero-sum game, a game theory that is imperative in trading specific financial instruments. Here, we discuss the idea at length.
The Zero-Sum Game Concept Simplified
Simply put, the ratio of wins and losses in the market is just equal. For every successful trade, there is a corresponding loss tallied by another trader. As a result, the correlation between gains and losses in the market is zero, hence the name.
The concept is applicable in most of the gambling we know, with poker being the classic example. Say that two players bet $100 for a round. When one loses his bet, the other one takes it. Since the gain of one is the loss of another, there is no presence of any practical value for both players.
Foreign Exchange as a Zero-Sum Game
Now, the same can be true for forex trading. Currencies are traded in pairs, and a single trade requires another transacting party to either buy or sell the pairs. It does not necessarily have to be an individual; a counterparty may be as large as a banking institution. Regardless, trades require a buyer and a seller.
The premise is simple: a trader’s win is a loss for its counterparty. Or it could be the other way around. Whichever is the case, the transaction has not established any sense of collective gain as there is a corresponding loss for every earning.
The Relevance of the Zero-Sum Concept
Many choose to believe that forex trading works through this concept. However, it varies according to persisting purpose and conditions. Take into account the history of forex, which was only accessible by large financial institutions before the public was given all-out access.
To date, almost anyone with reliable bandwidth and a capital can share a percentage of a particular currency, which means many traders pursue profitability even at the expense of someone else’s funds.
Other Opinions About the Zero-Sum Concept
In criticism of the zero-sum concept, some traders refuse to consider it the de facto case. Some believe that trading is a positive-sum game, which forwards the idea that someone in the market does not necessarily take the negative blow of another one’s profit.
For example, a trader who buys euro today and sells it the following day for a relatively higher price has earned a percentage. The seller, who bought it at a relatively low price before selling, also earns a percentage. With that, both the buyer and the seller have benefited.
There is also the belief that forex is a negative-sum game, which means profits and losses, when added collectively, are still below zero. This perspective then creates tighter market competition as the only way to stay winning is by taking advances from another party.
This concept is gleaned from how brokerage fees charge additional fees for different transactions.
Say, for example, a broker that employs a huge workforce charges additional fees to compensate. With this, buyers and sellers utilizing the broker’s platform have more losses than they actually record during trading. Collectively, both share the same level of loss as they are charged with the same amount of transaction fees.
What’s Your Next Move?
There are multiple ways to approach financial markets if you plan on entering soon. One of the best ways to help you decide is by looking at it as a zero-sum game. For every profit made by a trader is a loss tallied by another.
The exchange might not be as immediate. But if you look at it collectively, such is the case, especially for spot trading, which involves a high level of speculation.
Whatever your move will be, take your trading with Fair Forex. We help you gain desirable outcomes through trading tools, platforms, and a wide selection of accounts. We also offer a free demo for new users. Register now to get started.
How Old Do You Need to be to Trade Forex?
Traders, both novice and experienced, know for a fact that foreign exchange trading can be a feasible way to increase your margin of profitability. This is still true even if it carries risks due to financial instruments’ levels of volatility. And with almost everyone joining the hype of forex, interested parties have the same question in mind: at what age is it legally allowed to trade?
Starting as Early as 18 Years Old
Age is one of the many factors that need to be considered when opening an account with any brokerage firm. And commonly, 18 is the generally accepted age to start trading.
The age policy varies according to brokerage firms’ jurisdictions and the law they implement. For example, in the United Kingdom, people who are 18 years old and above can personally register with a broker, while some countries require a person to be 21 years old to do so.
It is for a good reason that brokers have restrictions on age. Trading is a taxing activity that adults can better accommodate. Anyone under the legal age can incur severe financial damage if they aren’t armed with the proper knowledge, and this financial damage can be difficult to recover from. Moreover, trading demands years of expertise in charting and speculation to ensure that profits will outweigh losses.
Getting Familiar with Trading Early On
If you happen to be underage, you can resort to using demo accounts for practice. Almost all brokers offer this type of account for anyone who wants to test a trading platform’s interface, usability, and functionality.
This is available for people under 18 as it is only loaded with a mock balance that anyone can use for trial trading. For most brokers, opening one is free and does not require the rigorous Know-Your-Customer (KYC) verification process.
Correlating Demo Accounts with Live Accounts
One of the advantages of having a demo account is getting an overview of the platform and the markets. But it is a known fact that the results rendered by a demo account do not usually come parallel with the results generated by live accounts.
Traders must learn to make realistic assumptions to offset the noticeable changes when they switch to a live account. In addition to this, it is best for demo account owners to make room for possible slippage as volatile shares have larger slippage compared to high-volume shares in an actual account.
More importantly, mindset will quickly get you on the right trading track. Even if demo account earnings cannot be withdrawn, traders must treat it as if they are trading using a live account. Doing so will indicate your emotional tolerance and your openness to the margin of losses and risk appetite.
Getting Started with Forex at a Young Age
With the help of demo accounts, aspiring traders can familiarize the technicalities of placing a trade, riding trends, and observing chart patterns. Having enough knowledge will then serve as an advantage for a trader, so you might as well engage in enriching your trading background before opening a live account.
Traders who start early also have a unique rapport and enthusiasm. Younger people usually appear more energetic, which means they can maximize each trading opportunity better than more experienced traders who religiously follow their established trading strategies and timeframe.
What Do More Experienced Traders Have Over Younger Ones?
Simply put, young traders tend to be impressionable, most especially when losses pile up more frequently than profits. This is something that expert traders have managed to surpass as they have a higher level of understanding that anything can go wrong in trading.
Another thing is the intimidating space of forex, which younger people may find challenging to navigate. This then goes back to the need to start at an early age to offset the difficulty of learning the industry at an older age.
Lastly, a small amount of capital may give young traders a sense of hesitation when placing positions. In contrast, expert traders who manage to save enough finances can confidently go about any position.
What’s the Next Best Step for Young Traders?
You can wait until you turn 18 before legally owning a live trading account, but you do not have to wait that long to learn the ins and outs of forex trading. The point is that younger people have enough room for knowledge acquisition, and opening a demo account is just the beginning.
Can Anyone Become a Forex Trader?
The past couple of decades has introduced the world to one economic downturn after the next. Even before the pandemic, the world has seen several financial crises since the start of the 21st century alone. And although everyone hopes they have seen the last of these problems, it will likely not be the case.
Since no one can predict the nature of the next economic struggle, the best step to take is to bolster one’s income and financial security. The forex market is one avenue people can take advantage of for this very purpose.
But can anyone become a forex trader? The answer is a resounding yes. And this article will discuss how to do just that.
Forex Trading in a Nutshell
Foreign exchange or forex is simply trading currencies with the speculation that their values rise or fall in reference to each other. Buying $100 worth’ of Euros today and selling it for $105 next week, for example, means that the trader has profited an amount of $5 in the week that saw an increase of value in the Euro against the US dollar.
Depending on the trade volume or frequency, currency pairs are regarded as major or minor. Major pairs include USD/EUR and USD/JPY. Minor pairs include CAD/USD. Some pairs are also called exotic pairs because of how seldom they are traded. An example is the USD/THB pair.
How to Become a Forex Trader
Technically, anyone with a little capital can begin trading in the forex market. However, for newbies, it is recommended to keep a learning attitude to equip yourself with the right tools and knowledge to increase your chances of doing well.
Here are the steps to take to become a profitable forex trader.
Find the Right Broker
In terms of volume, the forex market is the largest financial market in the world. Because of this, you will likely encounter a slew of brokers, many of them promising unlimited profits, among other things. And while that kind of offer does sound tempting, you should know from the outset that profits are not guaranteed.
Instead, look for a trustworthy broker that offers a secure platform. Look for a broker that provides resources for you to understand the market further and build trading strategies. Find a broker that offers helpful features like expert support, multiple deposit and withdrawal methods, and an insightful demo environment.
Learn By Experience
Once you’ve found such a broker, you can start trading right away. Many brokers require only minimal capital for you to access the market. However, it would be best if you first experience trading firsthand. You can do this without the risk of losing any capital by using a demo account.
In a demo environment, you can test your trading skills and strategies without running the risk of losing money when the trades do not go your way. It will help you not only learn the fundamentals of the market in a more interactive and retainable way, but you will also build confidence for when you start trading for real. Even seasoned traders use demo accounts to practise newly learned strategies.
Stay Up to Date
Like the equities market, the forex market is susceptible to influence from current events and economic changes. Everything worthy of becoming global news can impact the forex market. Staying up to date with these events will get you a step closer to making successful trades.
Of course, it is equally essential to understand how each of these changes can affect the market. A government scandal, for instance, can diminish business confidence in that state, affecting the value of their money.
Staying on top of the news and anticipating its effect on the market will help you profit.
It is never a bad idea to increase one’s means of making money. The forex market opens the door for anyone to become a trader and profit from shifts in the exchange rates of currencies.
To become a successful trader, one should begin by finding a reliable broker, practicing trading in a demo environment, and understanding how world events impact the market.
For more information about starting a forex trading career, visit our other resources. You can also speak with our team of forex experts. Chat with us using the button below or send us a query at [email protected]. Better yet, sign up for a live account and use our demo environment.
Fair Forex offers traders, new or otherwise, a secure platform and some of the best resources available to help them learn forex trading.
How Are Forex Gains Taxed?
Whether it’s the high liquidity or the low transaction costs, plenty of benefits convince people to jump into forex trading. However, many aspiring traders forget to consider how taxation works when buying or selling forex.
In today’s article, let’s go over the basics of forex taxes and how gains are taxed.
The Basics of Forex Taxes
When it comes to forex trading, traders need to pay tax on capital gains every time they can sell a given security at a higher price than the original purchase cost. Capital gains is the term used to refer to the increase in value of an asset when it’s sold.
When a forex trader makes a capital gain, they are considered taxable. Meanwhile, traders are not expected to pay any taxes for trades that have earned payouts or capital gains.
The specific capital gains tax rate largely depends on the country the trader is trading. The following are the maximum capital gains tax rate for some countries:
- United States (37%)
- Sweden (30%)
- Japan (20.315%)
- China (20%)
- United Kingdom (20%)
- Germany (25%)
- Spain (23%)
- Greece (15%)
- Russia (13%)
- Switzerland (0%)
It’s worth noting that some countries like Russia don’t have a separate tax rate for capital gains earnings. Some countries have effective tax rates that are significantly lower. However, they typically depend on the total annual income of the individual (trader) and other country-specific circumstances.
Section 1256 Tax Law
The Internal Revenue Service (IRS) essentially has two primary types (sections) of taxes applied to forex traders. That’s section 1256 and section 988.
Section 1256 is a 60/40 capital gains tax treatment and is generally considered by most traders as the most common way to file forex profits. Under section 1256, 60% of the total gains are taxed at 15%.
The 40% is taxed based on the trader’s current income bracket. In the case of an American trader, the 40% can be taxed for as high as 37%.
Many profitable traders prefer to report under section 1256 because it’s the option that offers a more significant tax break. The 60/40 tax treatment is also highly favourable for traders within the high-income tax brackets.
Section 1256 does have one major drawback. The total amount of losses that a trader can claim is capped at around $3,000 per year. When a trader suffers a net loss of $10,000 per year, they can only reduce their taxable income by $3,000.
Section 988 Tax Law
Section 988 is an alternative to section 1256, where most gains from forex transactions are treated as ordinary income. Regardless of whether an individual trader or a corporation earns the capital gains.
Since this section treats forex trading as an ordinary taxable income, traders will only pay for their payouts depending on their tax bracket. Here’s the US 2020 tax bracket:
|TAX RATE||SINGLE FILERS / MARRIED FILING SEPARATELY ($)||MARRIED FILING JOINTLY ($)||HEAD OF HOUSEHOLD ($)|
|10%||0 – 9,875||0 – 19,750||0 – 14,100|
|12%||9,876 – 40,125||19,751 – 80,250||14,101 – 53,700|
|22%||40,126 – 85,525||80,251 – 171,050||53,701 – 85,500|
|24%||85,526 – 163,300||171,051 – 326,600||85,501 – 163,300|
|32%||163,301 – 207,350||326,601 – 414,700||163,301 – 207,350|
|35%||207,351 – 518,400||414,701 – 622,050||207,351 – 518,400|
|37%||518,401 and above||622,051 and above||518,401 and above|
It’s important to keep in mind the standard deduction rate for single and married individuals. Individual filing is $12,400, while married filing (joint filing) is $24,800. A single trader with an annual income of $50,000 will need to have it deducted by $12,400, making it $37,600. That means the trader falls within the 12% bracket.
One major benefit of being taxed according to section 988 is that traders can use the total of their net losses to reduce their taxable income. Unlike section 1256, reducing taxable income isn’t capped at $3,000 per year.
That’s why losing traders and most spot traders prefer section 988. There are no capital-loss limitations. That will help any trader take advantage of trading losses to reduce the taxable income.
Familiarize Yourself with the Taxes
Whether you’re simply trying out Forex trading or fully committed to making it a career, it’s in your best interest to familiarize yourself with how taxation works. Doing so will help you better understand how trading works and help you deal with potential tax issues easier.
Understanding how taxation works can help you file them correctly and save you thousands of dollars in taxes.
When you’re ready to jump into Forex trading, consider joining Fair Forex. Our company is owned and operated by honest traders like you. Experience no manipulation or restrictions and lightning-fast execution under 50ms.
Visit our website to learn more about our company and sign up for a free demo.
Why is Forex So Popular?
With millions of active traders, the forex market is the world’s largest financial market. And developments in technology saw many of them taking their trade to cyberspace. The situation led to an increasing number of social media posts and online ads inviting people to trade on forex platforms.
Despite this, many of them forget to define what forex is, how it works, and why forex is a popular investment opportunity. A BIS Triennial Survey in 2019 showed that trading in the global foreign exchange market reached more than $6 trillion a day.
This blog will provide an overview of the forex market, including popular currencies, and why forex is popular among traders.
What is Forex?
Forex, or foreign exchange, is the trading of currencies from different countries. It’s one of the most popular ways to make money online because it offers high potential profits and allows traders to take advantage of price fluctuations between currencies.
The foreign exchange marketplace is where traders buy and sell currencies worldwide. It’s open 24 hours a day on weekdays. The forex market is incredibly liquid, so there are always buyers and sellers for every currency. This liquidity makes it possible for traders to get in and out of trades quickly and easily.
Forex pairs are the currencies that are being traded. To trade forex, you need to know which currencies are being sold and the exchange rate. The exchange rate is the price of one currency in terms of another currency.
When you trade forex, you’re buying one currency and selling another. The first currency listed is the base currency, and the second is the quote currency. When you see a currency pair like EUR/USD, it shows how many U.S. dollars are needed to buy one euro.
Several factors influence the exchange rate of currencies, including:
- Interest rates: When interest rates are high, investors are more likely to buy a currency because they can get a higher return on their investment. When interest rates are low, investors are less likely to buy a currency because they can’t make as much money.
- Economic conditions: The economic conditions of a country also influence the exchange rate of its currency. When a country’s economy is doing well, its currency tends to be strong. When a country’s economy is doing poorly, its currency tends to be weaker.
- Political conditions: For example, a country amid a political crisis will see a devaluation of its currency since investors are likely to pull their money out of the country.
- Geopolitical conditions: Geopolitical conditions, such as wars or natural disasters, can also impact a currency’s exchange rate.
Why Are Investors and Companies Engaged in Forex Trading?
The people and groups participating in forex trading include individual traders, hedge funds, banks, and other financial institutions. Most forex traders use a forex broker to trade currencies.
A forex broker is a company that provides access to the foreign exchange market. Brokers offer various services, including trading platforms, research tools, and education. They also give access to a wide range of currency pairs.
The most popular currencies being traded are the U.S. dollar, the euro, the British pound, the Japanese yen, and the Swiss franc. The U.S. dollar is popular because it’s the world’s reserve currency. Due to this, it’s the currency that most other countries use to trade. The U.S. dollar is also solid and stable, making it a desirable currency to trade.
Forex is more popular than other trading instruments because it offers high potential profits and liquidity. It also allows traders to take advantage of price fluctuations between different currencies.
Despite its volatility, short-term traders prefer forex trading to stock trading since it’s sometimes possible to get a quick profit. The market also allows them to trade 24 hours a day from 5:00 PM EST on Sunday until 5:00 PM EST on Friday.
Forex trading is popular because it offers traders the opportunity to make a profit in any market condition. And basic knowledge of forex and having enough capital can get anyone started on forex trading.
But it’s still important to consider the volatility of the market and the risks involved in forex trading. If you find the forex market an appealing option, you should work with a reliable forex broker to learn the ropes and improve your trading strategies. Contact us today.
The Six Best Forex Strategies for 2022
To make money trading forex, you need a reliable strategy. While many strategies can be successful, not all will work for every trader. That’s because each person has different goals, risk tolerance levels, and investment amounts.
That’s why it’s essential to find a strategy that suits your individual needs. Here are six of the best forex strategies for 2022. Each one has been proven successful for many traders, so you can be confident in using them yourself.
6 Strategies Experts Recommend
We’ve compiled a list of the six best forex strategies for 2022. These strategies have been tested and proven to work in today’s market.
Fibonacci Forex Strategy
The Fibonacci forex strategy is based on the Fibonacci sequence. This strategy uses mathematical ratios to predict future price movements. You can identify support and resistance areas using the Fibonacci retracement levels by drawing horizontal lines at the points where you can find these crucial levels.
Forex traders can use the Fibonacci indicator to determine where to place their entry and exit orders. The key is to put your stop-loss at or above the prior swing low (uptrend) or below the prior swing high (downtrend).
Bollinger Band Forex Strategy
A Bollinger band strategy can identify potential support and resistance levels in the market. The simple moving average (SMA) on the central line is set to 20 days, while the upper and lower lines measure market volatility.
The bands will widen when the forex market becomes highly volatile and get closer together when it’s calm. When the price reaches the outer bands, it often triggers the market to rebound back towards the central 20-period moving average.
The Bollinger band strategy helps identify potential support and resistance levels. It also helps traders determine when the market is becoming more or less volatile and when the price reaches its extreme levels.
EMA Crossover Strategy
The Exponential Moving Average, or EMA, guides traders to know the market’s direction using two EMAs of different values. EMA crossover methods use the intersection of two EMAs to enter the market.
EMA crossover strategies are simple strategies that traders of all experience levels can use. It also provides a good indication of the direction of the trend once it starts. The strategy can also be used on any time frame chart and is not limited to daily or weekly charts.
Momentum Indicator Forex Strategy
The momentum indicator forex strategy takes the most recent closing price and compares it to the previous closing price. It is displayed as a single line, usually on a separate chart below the main price chart.
The indicator oscillates to and from a centreline of 100. How far the indicator line is above or below 100 indicates how quickly the price is moving.
Momentum indicators can help in identifying overbought and oversold signals. Forex traders can use it to determine the market’s strength and whether the price is rising or falling. It’s critical to make sure the market has heeded the momentum indicator in the past and identify those variables that appear to be effective.
Keltner Channel Forex Strategy
The Keltner Channel is a volatility-based trading indicator that traders can determine when the currency pair moves too far from the moving average.
The Keltner Channel has two boundary bands constructed from two ten-day moving averages on either side of an exponential moving average. Traders can compare the price relationship to each side of the channel to determine whether a currency is oversold or overbought.
Gann Trend Following Strategy
The Gann Trend Following Strategy determines the next possible direction of the market using an indicator based on the angles of William Delbert Gann.
The Gann Trend Following Strategy uses a technical indicator to decide the market’s next possible direction.
When the Gann indicator shows a yellow ribbon, it means that the market has potentially entered a downtrend. On the other hand, an uptrend comes when the indicator shows a blue ribbon. Ideally, you should enter a position just after the close of the candle that shows the ribbon change.
The benefit of drawing a Gann angle is that it moves uniformly. This makes it easier for the analyst to forecast the price on a particular date.
Consult with Forex Trading Experts
While no strategy is perfect, using these methods should give you a good starting point for your trading career.
If you are unsure about which strategy to use, you should contact an experienced forex trader to help you. Get started with Fair Forex today.