Well, this past week was a roller coaster. I started with a zero day on Monday, just opening trades, continued with a good Tuesday, a down Wednesday... then Thursday hit.
Daytrading turned over $800 net, which was nice but the real kicker was all the momentum options trades that I closed as the market did it's thing. I closed about 20 positions at various points over the afternoon and saw well over $7,000 net profits. Based on the capital in play that is about a 70% ROI.
This month, one week in at least, I have set every trade at 3 contracts so, other than attempting to cherry pick trades, I have fully optimized my trading plan as I should have been doing all along. Plugging in 4 contracts shows about an increase of 50% in profits. That makes the move to 4 the largest gain in potential as I am getting past the effect of commissions. I posted a chart already indicating the increase, by percentage, for each single contract increase in overall trade size.
I could go right to 4 now but I would like to have one more week at three as I cannot run 10 trades at 4 yet... although one day will change that if is a profitable day.
On another note, Questrade has dropped the $5 daily fee for trading in US securities in a TFSA and RRSP account. That will bump my bottom line by $100 a month. That alone is a 1.5% per month increase in profits based on my original starting capital in the TFSA. Not a lot compared to the overall but every little bit does help.
Questrade, My direct access discount broker.
Showing posts with label TFSA. Show all posts
Showing posts with label TFSA. Show all posts
Saturday, May 8, 2010
Tuesday, May 4, 2010
Re-considering the TFSA overcontribution again
I decided, seeing as I have a 32% return for April and I aim for higher with the 3 contract plan in May, and with more trading days as well to work with that I will not bother trying the over contribution plan. It doesn't make any sense to raise any taxation red flags for the sake of a few months of optimum trade sizes. I'll get there soon enough.
Jeff.
Jeff.
Monday, May 3, 2010
Average option prices
It only took about five minutes to run all off April's trades to come up with an average option price.
$2.62.
Well, a little higher than my $2.00 guesstimate. Some of the trades were over $6 so I would feel comfortable running a minimum trade size for all trades below, say... $4. There were 14 above $4 out of 108 trades so about 10% may be one contract less.
Even at $2.62 per considering that I want to trade 5 contract minimums I would only have to add about $6,000 to my TFSA to meet my requirement. This puts me about three months ahead of schedule on my cashflow plan as well.
Considering the CRA fees against the added profit potential makes this a no brainer. I figure that I will have to come good for the taxation and penalty next spring... That is almost 12 full months of trading and I fully plan to withdraw the equivalent amount, $6K, to halt the accumulation of penalties quickly. In fact, based on April's trading that could be covered in the first month.
Tomorrow I will call my accountant to see if he has any insights for me though.
Jeff.
$2.62.
Well, a little higher than my $2.00 guesstimate. Some of the trades were over $6 so I would feel comfortable running a minimum trade size for all trades below, say... $4. There were 14 above $4 out of 108 trades so about 10% may be one contract less.
Even at $2.62 per considering that I want to trade 5 contract minimums I would only have to add about $6,000 to my TFSA to meet my requirement. This puts me about three months ahead of schedule on my cashflow plan as well.
Considering the CRA fees against the added profit potential makes this a no brainer. I figure that I will have to come good for the taxation and penalty next spring... That is almost 12 full months of trading and I fully plan to withdraw the equivalent amount, $6K, to halt the accumulation of penalties quickly. In fact, based on April's trading that could be covered in the first month.
Tomorrow I will call my accountant to see if he has any insights for me though.
Jeff.
Wednesday, April 7, 2010
TFSA day two.
This was a poor day, $7 in profits... better than a loss at least and all trades were closed, no hold overs.
I have been doing all the math showing some really nice numbers based on $10,000 trade sizes and what not. Today we had a talk, well, John did all the talking, in the direction of trade sizing. Apparently we are to keep out trades to a maximum of 5 contracts. I have no trouble with that initially as I am aiming for $1000 trades which makes most of the $2-$4 trades in the under 5 contract range. In a few weeks that will change. I had planned on at least hitting 10 contracts on larger options and up to 20 on smaller options.
The idea of limiting to this size is troublesome. I figure that I can trade the stocks and make use of larger trading capital by entering the stock at the same point as the options and exiting using trailing stops. The entries would be fine as the contract price entries are at or near low points, buy on weakness, and sold at high points, sell on strength. The thing about getting out of an option trade is that just placing a market order screws up the bid / ask for anyone else trying to get out at the same point. Market order exits in a liquid stock are just a matter of course and hardly have any real bearing on the price.
The trouble is I am using a TFSA and margin is not available and I cannot even just plunk a hoard of cash in there instead due to the $5,000 annual contribution limit.
So, back to options in the TFSA and stocks in the margin once I get things rolling along. I will aim for at least 100 share orders and will need to keep the price range under the $200 price range.
I worked out the trades for today based on time of entry in the options orders and the profits would have been in the $670 range if I had my $25,000 in the margin account. In the long run I will still be making the larger trades and may only use the options when they are being sold to open for some premium capture. I want to get my TFSA built up to be able to do the larger trades without going into margin use for these.
I am looking forward to a good day tomorrow and tuning my order entry to be sure to get into these options before the prices run up as they are lately... more people in the group will affect entries. 150 - 200 were about right. 300 is getting pretty full and we will have to be more selective on the stocks we are using. 500, the ultimate group size target seems like it may be too cumbersome, we will see.
Jeff.
I have been doing all the math showing some really nice numbers based on $10,000 trade sizes and what not. Today we had a talk, well, John did all the talking, in the direction of trade sizing. Apparently we are to keep out trades to a maximum of 5 contracts. I have no trouble with that initially as I am aiming for $1000 trades which makes most of the $2-$4 trades in the under 5 contract range. In a few weeks that will change. I had planned on at least hitting 10 contracts on larger options and up to 20 on smaller options.
The idea of limiting to this size is troublesome. I figure that I can trade the stocks and make use of larger trading capital by entering the stock at the same point as the options and exiting using trailing stops. The entries would be fine as the contract price entries are at or near low points, buy on weakness, and sold at high points, sell on strength. The thing about getting out of an option trade is that just placing a market order screws up the bid / ask for anyone else trying to get out at the same point. Market order exits in a liquid stock are just a matter of course and hardly have any real bearing on the price.
The trouble is I am using a TFSA and margin is not available and I cannot even just plunk a hoard of cash in there instead due to the $5,000 annual contribution limit.
So, back to options in the TFSA and stocks in the margin once I get things rolling along. I will aim for at least 100 share orders and will need to keep the price range under the $200 price range.
I worked out the trades for today based on time of entry in the options orders and the profits would have been in the $670 range if I had my $25,000 in the margin account. In the long run I will still be making the larger trades and may only use the options when they are being sold to open for some premium capture. I want to get my TFSA built up to be able to do the larger trades without going into margin use for these.
I am looking forward to a good day tomorrow and tuning my order entry to be sure to get into these options before the prices run up as they are lately... more people in the group will affect entries. 150 - 200 were about right. 300 is getting pretty full and we will have to be more selective on the stocks we are using. 500, the ultimate group size target seems like it may be too cumbersome, we will see.
Jeff.
Monday, April 5, 2010
Could have's and all in with the TFSA vs Margin and taxation
With the decision I made based on my last post, to cash in my Optioneer capital to trade my current plans, I ran some numbers to see where best I might use the transferred cash. I had already put all of the option trades into a spreadsheet in order to see what my 3 weeks of trading would produce if I extrapolated the same results forward. I considered that if I only used the three weeks that it accommodates a possible poor fourth week performance and sort of treats it as if the fourth week only broke even...unlikely but possible. I also set this up as if I were following a truly equal weighted trading plan.
I ran six separate "studies" as follows:
Three used a margin account... which does not help with the option trading except that I could start with more cash. The other three use the TFSA account.
Margin:
$20,000 start up, 4, 5 and 6 concurrent trades (basically using three trade sizes, 25%, 20% and 16.7%)
Taxes are deducted at 40% at the end of each year.
Trade size is only adjusted at the end of each month... so monthly instead of daily compounding.
TFSA
$6,000 start up, 4, 5 and 6 concurrent trades (basically using three trade sizes, 25%, 20% and 16.7%)
Taxes are not deducted, none owing.
Trade size is only adjusted at the end of each month... so monthly instead of daily compounding.
Maximum trade size is $10,000.
Results:
Margin:
Balance at year one: 4 trade = $256,892, 5 trade = $248,855, 6 trade = $239,867
Balance at year two: 4 trade = $526,271, 5 trade = $518,264, 6 trade = $509,245
Maximum trade size reached in months June, June and July respectively.
TFSA:
Balance at year one: 4 trade = $352,452 , 5 trade = $322,513, 6 trade = $291,108
Balance at year two: 4 trade = $787,416, 5 trade = $757,457 , 6 trade = $726,072
Maximum trade size reached in months August, September and October respectively.
I thought about bumping the TFSA up $5000 after next January but what would be the point? The income is already flowing well above worrying about that, in fact the maximum trade size is already achieved well ahead of that. I expect that I will be peeling off cash in order to fund other trading that may involve needing margin, or perhaps not.
The long and short is that the TFSA, once again, beats margin hands down... taxes take their toll. It might be different if I were able to leverage the 3:1 margin for these trades but the max trade size is max for reasons of affecting the trades within the group so margin is a secondary issue.
Having said that I will be using margin for the stock trades that we take, we have taken a few, two today in fact, so restricting my study to only options traded is a bit narrow minded. I don't mind that as it skews the results against me, if you can call those two year forecasts "against". I also did not count the other two services that I subscribe to, which are both in the green. I used very little cash to fund these so I expect to turn up the heat on those shortly.
So, I "could have" been that much farther ahead already had I started "all in".
I am waiting for the cash to settle in my TFSA as I type this, request to transfer was placed immediately after trading on Thursday last week. It takes three business days due to the way that they convert and transfer the cash. Had I known I could have done it same day in a different manner....oh well. I will consider April month one and will reset my stats to match this as time progresses.
Jeff.
I ran six separate "studies" as follows:
Three used a margin account... which does not help with the option trading except that I could start with more cash. The other three use the TFSA account.
Margin:
$20,000 start up, 4, 5 and 6 concurrent trades (basically using three trade sizes, 25%, 20% and 16.7%)
Taxes are deducted at 40% at the end of each year.
Trade size is only adjusted at the end of each month... so monthly instead of daily compounding.
TFSA
$6,000 start up, 4, 5 and 6 concurrent trades (basically using three trade sizes, 25%, 20% and 16.7%)
Taxes are not deducted, none owing.
Trade size is only adjusted at the end of each month... so monthly instead of daily compounding.
Maximum trade size is $10,000.
Results:
Margin:
Balance at year one: 4 trade = $256,892, 5 trade = $248,855, 6 trade = $239,867
Balance at year two: 4 trade = $526,271, 5 trade = $518,264, 6 trade = $509,245
Maximum trade size reached in months June, June and July respectively.
TFSA:
Balance at year one: 4 trade = $352,452 , 5 trade = $322,513, 6 trade = $291,108
Balance at year two: 4 trade = $787,416, 5 trade = $757,457 , 6 trade = $726,072
Maximum trade size reached in months August, September and October respectively.
I thought about bumping the TFSA up $5000 after next January but what would be the point? The income is already flowing well above worrying about that, in fact the maximum trade size is already achieved well ahead of that. I expect that I will be peeling off cash in order to fund other trading that may involve needing margin, or perhaps not.
The long and short is that the TFSA, once again, beats margin hands down... taxes take their toll. It might be different if I were able to leverage the 3:1 margin for these trades but the max trade size is max for reasons of affecting the trades within the group so margin is a secondary issue.
Having said that I will be using margin for the stock trades that we take, we have taken a few, two today in fact, so restricting my study to only options traded is a bit narrow minded. I don't mind that as it skews the results against me, if you can call those two year forecasts "against". I also did not count the other two services that I subscribe to, which are both in the green. I used very little cash to fund these so I expect to turn up the heat on those shortly.
So, I "could have" been that much farther ahead already had I started "all in".
I am waiting for the cash to settle in my TFSA as I type this, request to transfer was placed immediately after trading on Thursday last week. It takes three business days due to the way that they convert and transfer the cash. Had I known I could have done it same day in a different manner....oh well. I will consider April month one and will reset my stats to match this as time progresses.
Jeff.
Saturday, October 17, 2009
TFSA changes, expected changes anyway
It was brought to my attention this morning that the government has made a change to the TFSA rules regarding over contributions.
The official Government of Canada release.
The juicy bits:
"...some TFSA holders are attempting to generate a rate of return on deliberate overcontributions over a short period of time sufficient to outweigh the cost of the 1% tax. On its introduction, it was not anticipated that the TFSA would be subject to this type of deliberate overcontribution."
DUH!... why would they not expect that? Anyone with half a brain and a plan probably thought of this already.
Originally the overcontribution was subject to a 1% per month tax on the overcontribution amount. I figured that I could easily beat that and create a positive return with that considered and I could stand to gain quicker due to a larger capital base to work from. As I was playing and could not guarantee a return I did not pursue the idea. The best part was the the return was not taxable as ONLY the overcontribution was taxable.
"Under the proposed amendments, any income reasonably attributable to deliberate overcontributions will be made subject to the existing advantage rules (as described above) and taxed accordingly. Pursuant to the advantage rules, the tax payable on the income will be 100%."
This means that only the applicable income tax will be levied on the profits in addition to the 1%, not that the entire amount will be confiscated. I could see this being waived where a particular position required more than the $5,000, but not by too much more, and the expectation of return was not short term nor that much greater then the 1%...but I have no intention of testing this.
Now that I am getting decent results it wouldn't be an advantage with the the new ruling especially as my positions are all less then $400 (most are currently less than $120) so adding even a few hundred dollars and being taxed on the full profit would end up costing my 1% per month more than if I just used my margin account AND making my tax return more complicated.
I have $5K of room in the new year, which is fast approaching now anyway.
As it is I was concerned about the government taking a dim view of active trading producing larger results and perhaps changing the rules due to that alone. I am surprised it took this long for them to close this loophole.
I wonder how large these overcontributions were that triggered the red flag in the first place and why the institution managing the account would not disallow those excessive deposits, they could have... but I suppose the current legislation did not give them the authority to do so.
Jeff.
The official Government of Canada release.
The juicy bits:
"...some TFSA holders are attempting to generate a rate of return on deliberate overcontributions over a short period of time sufficient to outweigh the cost of the 1% tax. On its introduction, it was not anticipated that the TFSA would be subject to this type of deliberate overcontribution."
DUH!... why would they not expect that? Anyone with half a brain and a plan probably thought of this already.
Originally the overcontribution was subject to a 1% per month tax on the overcontribution amount. I figured that I could easily beat that and create a positive return with that considered and I could stand to gain quicker due to a larger capital base to work from. As I was playing and could not guarantee a return I did not pursue the idea. The best part was the the return was not taxable as ONLY the overcontribution was taxable.
"Under the proposed amendments, any income reasonably attributable to deliberate overcontributions will be made subject to the existing advantage rules (as described above) and taxed accordingly. Pursuant to the advantage rules, the tax payable on the income will be 100%."
This means that only the applicable income tax will be levied on the profits in addition to the 1%, not that the entire amount will be confiscated. I could see this being waived where a particular position required more than the $5,000, but not by too much more, and the expectation of return was not short term nor that much greater then the 1%...but I have no intention of testing this.
Now that I am getting decent results it wouldn't be an advantage with the the new ruling especially as my positions are all less then $400 (most are currently less than $120) so adding even a few hundred dollars and being taxed on the full profit would end up costing my 1% per month more than if I just used my margin account AND making my tax return more complicated.
I have $5K of room in the new year, which is fast approaching now anyway.
As it is I was concerned about the government taking a dim view of active trading producing larger results and perhaps changing the rules due to that alone. I am surprised it took this long for them to close this loophole.
I wonder how large these overcontributions were that triggered the red flag in the first place and why the institution managing the account would not disallow those excessive deposits, they could have... but I suppose the current legislation did not give them the authority to do so.
Jeff.
Wednesday, September 16, 2009
RRSP, TFSA, Margin and option strategies.
I decided that I want to start selling option contracts so I figured that I better know what I can and cannot do within my various accounts.
MARGIN ACCOUNT:
I can do pretty much anything although the complexity of some of the strategies somewhat restricts my activities only due to the platform being not as options strategy friendly as it could be. I might review the Elite platform and see how it fairs compared to the Pro package.
Level 1
I can buy options with a $1000 account startup and can continue to do so as long as the net worth of the account remains above $250.
Level 2
I can sell covered calls as long as the account balance is $2500. For this I have to already hold the underlying stock so it is a bit of a cash creation strategy only based on a core position. The difference between 2 and 3 are slight but are delineated for the purpose of taxation and registered accounts.
Level 3
Spreads and straddles are allowed, although I can trade a straddle without being "authorized" as it is really just two long trades. I think that perhaps the trades are somehow tied together when done as an official "straddle" as it specifies the simultaneous call and put at the same strike price.
The Spread is buying one option and selling another against it. Buy the 20 strike call and sell the 15 strike put for example. The call is a long position that is the same as holding the stock so that if the put is exercised and you are forced to buy the stock, my call is also exercised to cover this as I buy the stock at the call strike price. In that case the premium I made selling the put goes against the loss off being put the stock and executing the option at the higher strike, creating a loss. The spread is a limited risk scenario without holding stocks as even if the stock hit zero my total loss is fixed.
Level 4
$25,000 minimum account size.
Uncovered writing. Basically I can sell calls and puts without any safety net as I may have them exercised at whatever the going prices are. This is a very risky trade plan and not something I would even consider unless I wanted to sell puts and I didn't care if I ended up owning the stock. Selling naked calls is just plain dumb, in my opinion, as if a call gets exercised I don't end up with anything other than a an uncontrolled loss.
Now, in a registered account, RRSP or TFSA, I know I cannot short stocks so I would expect that level 4 is not an option, uncovered writing. Level 3 might not be because the option trades are setup as a money making venture as opposed to a position protection measure. This I was not certain of but I have confirmed it.
Registered accounts can only trade level 1 or 2.
OK, this puts me at a disadvantage in my plans going forward. I would like to be able to trade a variety of strategies that are not allowed in a tax sheltered account so I will have to accommodate the eventual taxation of a portion of my trading activities.
Jeff.
MARGIN ACCOUNT:
I can do pretty much anything although the complexity of some of the strategies somewhat restricts my activities only due to the platform being not as options strategy friendly as it could be. I might review the Elite platform and see how it fairs compared to the Pro package.
Level 1
I can buy options with a $1000 account startup and can continue to do so as long as the net worth of the account remains above $250.
Level 2
I can sell covered calls as long as the account balance is $2500. For this I have to already hold the underlying stock so it is a bit of a cash creation strategy only based on a core position. The difference between 2 and 3 are slight but are delineated for the purpose of taxation and registered accounts.
Level 3
Spreads and straddles are allowed, although I can trade a straddle without being "authorized" as it is really just two long trades. I think that perhaps the trades are somehow tied together when done as an official "straddle" as it specifies the simultaneous call and put at the same strike price.
The Spread is buying one option and selling another against it. Buy the 20 strike call and sell the 15 strike put for example. The call is a long position that is the same as holding the stock so that if the put is exercised and you are forced to buy the stock, my call is also exercised to cover this as I buy the stock at the call strike price. In that case the premium I made selling the put goes against the loss off being put the stock and executing the option at the higher strike, creating a loss. The spread is a limited risk scenario without holding stocks as even if the stock hit zero my total loss is fixed.
Level 4
$25,000 minimum account size.
Uncovered writing. Basically I can sell calls and puts without any safety net as I may have them exercised at whatever the going prices are. This is a very risky trade plan and not something I would even consider unless I wanted to sell puts and I didn't care if I ended up owning the stock. Selling naked calls is just plain dumb, in my opinion, as if a call gets exercised I don't end up with anything other than a an uncontrolled loss.
Now, in a registered account, RRSP or TFSA, I know I cannot short stocks so I would expect that level 4 is not an option, uncovered writing. Level 3 might not be because the option trades are setup as a money making venture as opposed to a position protection measure. This I was not certain of but I have confirmed it.
Registered accounts can only trade level 1 or 2.
OK, this puts me at a disadvantage in my plans going forward. I would like to be able to trade a variety of strategies that are not allowed in a tax sheltered account so I will have to accommodate the eventual taxation of a portion of my trading activities.
Jeff.
Saturday, February 7, 2009
TFSA and taxation
I finally got around to finishing my investigating the possible taxation of a TFSA. There are no grey areas in this registered account setup...yet.
An excerpt from the applicable page on the CRA website,
"All amounts in the account are not taxable, except in the following cases:
....
If property that is considered to be a prohibited investment or a non-qualified investment is acquired, or if property held in the account becomes such,..."
That severely abridged but the other cases have to do with death, excess contributions, non-residents, closing the TFSA...I have no concerns about these. Here is the link for the complete page so you can read it yourself, Taxation of a TFSA
To expand on "prohibited investments" and "non-qualified investments" for a moment.
Prohibited investments include non-arms length stuff and loans to yourself.
Non-qualified investments include property that is not a qualified investment for the trust...if your broker let's you buy it, it is qualified as they are administering the trust part.
Investment vehicles that are allowed in a TFSA are the same as allowed in an RRSP, here is the link to the CRA page referring to this, Types of Investments Allowed.
From the self directed RRSP page this little blurb is useful to know, "You do not need to report any transactions for items held in your RRSP.". This basically allows any kind of transactions as long as the transaction is based on a qualified investment, the bold was my emphasis. Timeframe is not a factor. Questrade is very clear that they do not enforce any American rules about pattern daytrading, a month, a week, a day or a minute are the same to them. I might suspect that other brokers may enforce these, high minimum balances, even push settle dates for buying power and in their TFSAs those same rules would apply.
Another page from the CRA site, an Income Tax Interpretation Bulletin that has some pertinent information and clarifies a number of issues.
More reading can be found in the actual Income Tax Act itself, this from the Department of Justice site.
I mentioned timeframe. Nowhere is a timeframe mentioned as a restriction in any registered plans, or even any kind of factor. In a regular non-registered account, timeframe is a factor in determining if a gain is of a capital nature or not as transactions involving "identical properties" from the Captial Gains 2008 Guide. See Page 35 under "Superficial Loss".
What this all boils down to is that if timeframe is not a factor and a stock traded is a qualified property under the plan then there shall be no tax implications on any gains, whether capital, interest, dividend or otherwise in nature.
Happy TFSA trading for any that are doing or planning to do so.
I suppose I should put this bit in...I am not a tax specialist nor do I have any qualifications to advise any one their particular tax situation. Please consult your own knowledgeable source before making any decisions that may affect your tax profile. If nothing else this entry can at least point you in the direction of doing your own research. Everyone should know what they are dealing with without having to rely solely on anyone else's opinion or interpretation.
Jeff.
An excerpt from the applicable page on the CRA website,
"All amounts in the account are not taxable, except in the following cases:
....
If property that is considered to be a prohibited investment or a non-qualified investment is acquired, or if property held in the account becomes such,..."
That severely abridged but the other cases have to do with death, excess contributions, non-residents, closing the TFSA...I have no concerns about these. Here is the link for the complete page so you can read it yourself, Taxation of a TFSA
To expand on "prohibited investments" and "non-qualified investments" for a moment.
Prohibited investments include non-arms length stuff and loans to yourself.
Non-qualified investments include property that is not a qualified investment for the trust...if your broker let's you buy it, it is qualified as they are administering the trust part.
Investment vehicles that are allowed in a TFSA are the same as allowed in an RRSP, here is the link to the CRA page referring to this, Types of Investments Allowed.
From the self directed RRSP page this little blurb is useful to know, "You do not need to report any transactions for items held in your RRSP.". This basically allows any kind of transactions as long as the transaction is based on a qualified investment, the bold was my emphasis. Timeframe is not a factor. Questrade is very clear that they do not enforce any American rules about pattern daytrading, a month, a week, a day or a minute are the same to them. I might suspect that other brokers may enforce these, high minimum balances, even push settle dates for buying power and in their TFSAs those same rules would apply.
Another page from the CRA site, an Income Tax Interpretation Bulletin that has some pertinent information and clarifies a number of issues.
More reading can be found in the actual Income Tax Act itself, this from the Department of Justice site.
I mentioned timeframe. Nowhere is a timeframe mentioned as a restriction in any registered plans, or even any kind of factor. In a regular non-registered account, timeframe is a factor in determining if a gain is of a capital nature or not as transactions involving "identical properties" from the Captial Gains 2008 Guide. See Page 35 under "Superficial Loss".
What this all boils down to is that if timeframe is not a factor and a stock traded is a qualified property under the plan then there shall be no tax implications on any gains, whether capital, interest, dividend or otherwise in nature.
Happy TFSA trading for any that are doing or planning to do so.
I suppose I should put this bit in...I am not a tax specialist nor do I have any qualifications to advise any one their particular tax situation. Please consult your own knowledgeable source before making any decisions that may affect your tax profile. If nothing else this entry can at least point you in the direction of doing your own research. Everyone should know what they are dealing with without having to rely solely on anyone else's opinion or interpretation.
Jeff.
Friday, January 9, 2009
TFTA, TFSA and Questrade
I applied for and have my new TFTA account and I am now just waiting for a password to start trading.
The process went smoothly except I tried faxing in my photo ID and it was too dark, I should have scanned and emailed it so I have about a two day delay that I caused.
I was able to use e-signatures to send everything in without having to mail paperwork, used a transfer from my margin trading account to initially fund the account and sent an EFT from my bank account to add some more capital to start with.
The only thing that I have not had cleared up for me is exactly how two trading accounts will work. I am sure that the trading platform handles multiple accounts, the manual states that it does but gives no details. I am sure it is just a tab selection to switch between the two so I am not really concerned about the functionality.
What I am not sure about is how to get the two onto the one platform...or how to switch the platform to TFTA exclusively. I just am trying not to incur any additional data fees or at least keep any potential data fees outside of the TFTA.
Having said that, my plan is to do no margin trading so I could just transfer the whole works. Being a discount broker I did not want to get too complicated with my setup so I will wait and see how it meshs...I have an email in to have this questions answered but I don't expect a quick answer. Right now they are up to their eyeballs in people inquiring about TFSA stuff. I see that their online help, which is usually very timely, is now running 20 people deep and 30 minutes or more behind the estimated handling time.
Don't be in a hurry if you are looking for answers from Questrade right now. Perhaps they underestimated the flurry of applications and questions that go with that.
The end run is that I expect that once I have my password and access to the TFTA I will have to call and have a CSR do some keypunching to get me set up the way that I want. I registered the account under the free platform package for now...I should have suspended my Pro package for January but I would have had to register the request in December and I would have lost my realtime feed to do any more testing... I need my feed.
All in all we shall see how this goes.
Jeff.
The process went smoothly except I tried faxing in my photo ID and it was too dark, I should have scanned and emailed it so I have about a two day delay that I caused.
I was able to use e-signatures to send everything in without having to mail paperwork, used a transfer from my margin trading account to initially fund the account and sent an EFT from my bank account to add some more capital to start with.
The only thing that I have not had cleared up for me is exactly how two trading accounts will work. I am sure that the trading platform handles multiple accounts, the manual states that it does but gives no details. I am sure it is just a tab selection to switch between the two so I am not really concerned about the functionality.
What I am not sure about is how to get the two onto the one platform...or how to switch the platform to TFTA exclusively. I just am trying not to incur any additional data fees or at least keep any potential data fees outside of the TFTA.
Having said that, my plan is to do no margin trading so I could just transfer the whole works. Being a discount broker I did not want to get too complicated with my setup so I will wait and see how it meshs...I have an email in to have this questions answered but I don't expect a quick answer. Right now they are up to their eyeballs in people inquiring about TFSA stuff. I see that their online help, which is usually very timely, is now running 20 people deep and 30 minutes or more behind the estimated handling time.
Don't be in a hurry if you are looking for answers from Questrade right now. Perhaps they underestimated the flurry of applications and questions that go with that.
The end run is that I expect that once I have my password and access to the TFTA I will have to call and have a CSR do some keypunching to get me set up the way that I want. I registered the account under the free platform package for now...I should have suspended my Pro package for January but I would have had to register the request in December and I would have lost my realtime feed to do any more testing... I need my feed.
All in all we shall see how this goes.
Jeff.
Saturday, January 3, 2009
Questrade, TFTA, a change of rules, mine
This whole last few months I've been going on about the Tax Free Savings (Trading) Account (TFTA) and how I was going to use it for all of my trading. Yesterday I filled out the application and forwarded it to Questrade. They have a method of e-signing the forms, which may be only available to existing customers, that sped up the whole process. All I have to do is fax them a copy of my driver's license, EFT some cash and I should be ready to go in short order. Pretty simple and quick.
So, in reading the details I ran across the phrase "capital gains" when referring to what can grow tax free within the account. It occurred to me that the profit from short selling stocks is not, technically, capital gains and if push comes to shove with the government they are treated as regular income for tax purposes...again, not capital gains.
I used the online help feature and had my answer in a minute. No, shorting is not allowed in a TFTA. I actually should have known this as I knew that shorting was not allowed in an RRSP account either. I was blinded by the fact that I could short in a margin account and the gains looked really promising...my research was lacking.
I quickly went back over all of my previous trades to see how much of my profit would have been from short selling. This was easy enough as I have always kept a long/short profit ratio for all my tracking spreadsheets. Note that this is not a ratio of number of trades, just profit.
Overall I am running about 1:1. So half of my trading profit would not be counted. Seeing as my performance is close to 2% per day I would be just shy of my daily goal if I dropped half of my trades...or my trading profit. I consider that I usually stop at a daily maximum of 6 trades, more often 4. So if I was concentrating on making that many trades and with long only positions I may have been able to make 75% of the trades. So I might have seen 1.5% per day.
My options to adjust my trading plan include:
1) long only trades with the same plan that I have been using, result may be 25% - 50% reduction in profits
2) long in the TFTA, short in margin, result is taxable (max marginal rate) for all short profits so the overall effect would be pretty close to option 1), within 10%
3) variation of option 2) in that all profits at year end for shorts are contributed to my RRSP account whereby the taxation is negated but the downside is that these will be taxed upon withdrawal... perhaps at a lower tax rate at the time
4) variation of option 1) by using only the TFTA, trading my favourite stocks long and shorting the index that they are tracking through the use of a bear Exchange Traded Fund (ETF), result is the same tax free profit potential as I was planning on originally
Well, option 4 becomes the no brainer solution to my dilemma it would appear. In investigating the ETFs I start to wonder if I can trade them exclusively.
This would be easy enough as I just run the bear and corresponding bull ETF side by side with the related index they track and the TSX for the overall market and trade them back and forth. When one is rallying the other will be pulling back which means that one or the other will always be gaining...except in a true sidways market move. The difference in prices will necessitate using different position sizing for each which will look after the scaling according to the size of the move. Roughly a 1% gain in one will yield a 1% drop in the other.
In the interest of keeping it simple I think I will start out with option 1) only and see how it goes. I believe that the stocks I have selected will be seeing some gains over the next while so long positions will be many, I may have to increase my time trading by a bit though. If that does not pan out then I will play with the ETF and see how they work out for trade executions and perhaps mix it up from there.
I will have to wait for my TFTA to get going first as I really want to stay away from any gains in this 2009 tax year.
I should have known it was not going to be such an easy ride and that the testing was not yet complete. Too bad as I would have liked to have had this ironed out earlier. If I do some testing with the expectation of a loss then it will reduce the capital in my account as I cannot just "top it off" after testing is complete. $5K contributed is the limit no matter the trading losses incurred...unless I over-contribute and pay the monthly penalty. Questrade may enforce the maximum as their policy is worded in such a way at that is possible.
Jeff.
So, in reading the details I ran across the phrase "capital gains" when referring to what can grow tax free within the account. It occurred to me that the profit from short selling stocks is not, technically, capital gains and if push comes to shove with the government they are treated as regular income for tax purposes...again, not capital gains.
I used the online help feature and had my answer in a minute. No, shorting is not allowed in a TFTA. I actually should have known this as I knew that shorting was not allowed in an RRSP account either. I was blinded by the fact that I could short in a margin account and the gains looked really promising...my research was lacking.
I quickly went back over all of my previous trades to see how much of my profit would have been from short selling. This was easy enough as I have always kept a long/short profit ratio for all my tracking spreadsheets. Note that this is not a ratio of number of trades, just profit.
Overall I am running about 1:1. So half of my trading profit would not be counted. Seeing as my performance is close to 2% per day I would be just shy of my daily goal if I dropped half of my trades...or my trading profit. I consider that I usually stop at a daily maximum of 6 trades, more often 4. So if I was concentrating on making that many trades and with long only positions I may have been able to make 75% of the trades. So I might have seen 1.5% per day.
My options to adjust my trading plan include:
1) long only trades with the same plan that I have been using, result may be 25% - 50% reduction in profits
2) long in the TFTA, short in margin, result is taxable (max marginal rate) for all short profits so the overall effect would be pretty close to option 1), within 10%
3) variation of option 2) in that all profits at year end for shorts are contributed to my RRSP account whereby the taxation is negated but the downside is that these will be taxed upon withdrawal... perhaps at a lower tax rate at the time
4) variation of option 1) by using only the TFTA, trading my favourite stocks long and shorting the index that they are tracking through the use of a bear Exchange Traded Fund (ETF), result is the same tax free profit potential as I was planning on originally
Well, option 4 becomes the no brainer solution to my dilemma it would appear. In investigating the ETFs I start to wonder if I can trade them exclusively.
This would be easy enough as I just run the bear and corresponding bull ETF side by side with the related index they track and the TSX for the overall market and trade them back and forth. When one is rallying the other will be pulling back which means that one or the other will always be gaining...except in a true sidways market move. The difference in prices will necessitate using different position sizing for each which will look after the scaling according to the size of the move. Roughly a 1% gain in one will yield a 1% drop in the other.
In the interest of keeping it simple I think I will start out with option 1) only and see how it goes. I believe that the stocks I have selected will be seeing some gains over the next while so long positions will be many, I may have to increase my time trading by a bit though. If that does not pan out then I will play with the ETF and see how they work out for trade executions and perhaps mix it up from there.
I will have to wait for my TFTA to get going first as I really want to stay away from any gains in this 2009 tax year.
I should have known it was not going to be such an easy ride and that the testing was not yet complete. Too bad as I would have liked to have had this ironed out earlier. If I do some testing with the expectation of a loss then it will reduce the capital in my account as I cannot just "top it off" after testing is complete. $5K contributed is the limit no matter the trading losses incurred...unless I over-contribute and pay the monthly penalty. Questrade may enforce the maximum as their policy is worded in such a way at that is possible.
Jeff.
Monday, December 8, 2008
Questrade and the TFTA
I have given up differentiating the difference between real trading and fake or paper trading for the rest of this month here. My entries are the same either way and my exits are very close as well. I don't really want to have any tax implications for this year as I apply all my energy towards fine tuning my trading in preparation for the Tax Free Savings Account coming to Questrade next month. They are referring to it as the TFTA (Tax Free Trading Account) as they are offering all the same tools for trading as their regular account...with the exception of margin I expect.
I will be tracking them separately and combined still but I need to get my headspace around the whole trading game, all of the trades not just two subsets.
Here are the links for the general release and a Q&A about the government rules. Questrade is being pretty liberal with it but I am not familiar with any other offerings.
Pamphlet
The original link again
Jeff.
I will be tracking them separately and combined still but I need to get my headspace around the whole trading game, all of the trades not just two subsets.
Here are the links for the general release and a Q&A about the government rules. Questrade is being pretty liberal with it but I am not familiar with any other offerings.
Pamphlet
The original link again
Jeff.
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