Stock Trading Questions

[FANOFJESUS]

I have a small amount of fun money. I have a stock trading idea I would like to try with an index. Buying and selling it lets say about 15 times a month. What would happen if I did that with the wash sale rule? Is there a site I could try this idea first before I put in some real money? A site that allows auto sell orders.

 

[growing_older]

You might see if an ETF allows that. I expect most would.

I'm no wash sale expert, but I think you will always be buying back the same security, so you won't be able to claim any losses for individual trades, but will only have either the gain or the loss of the net position from all the trades in the sequence.

 

[MooreBonds]

I have a small amount of fun money. I have a stock trading idea I would like to try with an index. Buying and selling it lets say about 15 times a month. What would happen if I did that with the wash sale rule? Is there a site I could try this idea first before I put in some real money? A site that allows auto sell orders.

My understanding is that if you take a loss and buy-back an identical security within 30 days, then you cannot take the loss from the prior sale...BUT, you ADD the amount of the loss to your current position:

e.g.
Buy 100 SPY @ 100
Sell 100 SPY @ 90
Loss = $1,000

3 days later:
Buy 100 SPY @80
Cost = $8,000
Add-in your loss of $1,000, and your total taxable cost basis becomes $9,000.

If you have heavy trading in an identical security with multiple trades throughout the year violating the 30 day rule, then you would have a fun time the following year with your taxes. Some brokers MIGHT track your losses with the wash-sale rule, but I have no clue, as I haven't run into that with my portfolio since brokers started tracking cost basis for Form 8949 starting last year.

 

[rbmrtn]

I would look at trade free ETFs, to minimize trading cost. Schwab has them now ( others as well )

ETFs: Exchange-Traded Funds: Charles Schwab

Wash sale you basically give up claiming capital loss. But you can trade into different indexes or sectors, S&P to nasdaq.

 

[utrecht]

How are you going to make money trading in and out of an index all month? Unless you have a crystal ball that is.

You dont give up getting to claim losses due to the wash sale rule. All it does is push your loss further down the road.

Lets take these 2 examples:

4/5/13..I buy 100 shares of SPY at 155
4/6/13..I sell 100 shares of SPY at 154 and lose $100
5/15/13..I buy 100 shares of SPY at 152
5/16/13..I sell 100 shares of SPY at 154 and make $200
I have a loss of $100 and a gain of $200

4/5/13..You buy 100 shares of SPY at 155
4/6/13..You sell 100 shares of SPY at 154 and lose $100
4/7/13..You buy 100 shares of SPY at 152
You now cant claim the loss of $100 for the first trade but your cost basis on the second trade is now 153 (not the 152 that you actually paid). If you sell these shares before the end of the year then the end result is exactly the same.'
4/8/13 You sell 100 shares of SPY at 154. You make $200 but since your costs basis is adjusted, your capital gain is $100

We both have a total capital gain of $100.

 

[ERD50]

Try it an IRA account - you won't need to track cap gains and deal with wash sales (*). That would be a lot of paperwork for what will likely be little gain. This is easily done with an ETF - they trade just like stocks.

(*) - Technically, if you are trading the same ETF in a personal account, the IRA sale does affect the personal account in terms of washes, but I can't imagine the IRS could ever detect this or that it would amount to significant tax deltas under mere mortal sized accounts.

-ERD50

 

[Onward]

Not sure about Schwab, but most brokerages with no-transaction-fee ETFs restrict short-term trading.

 

[FANOFJESUS]

Thanks everybody the info was helpful.

 

[NanoSour]

Don't do it! And I hope your wife's name isn't Sally.

 

[heeyy_joe]

Unless you are operating in a margin brokerage account the number of trades you make and when you make them could result in a free-riding restriction on your account.

 

[FANOFJESUS]

Thanks heeyy joe Schwab also want a certain amount of money in the account also to be able to trade that often.