Hello, Short-term trades are taxed at ordinary income. But if you have a 401k, you don't have to pay taxes on capital gains until you withdraw. The IRS code says if you withdraw money from a 401k before retirement age, you have to pay a 10% penalty on top of the regular tax. But this one-time 10% hit could be a lot better than always having to pay ordinary income tax rates on short term trades. Plus you get to start with pre-tax money. A one-time hit of 10% at the end seems a lot better than a series of 25-30% income tax penalties along the way. 401k plans are often sleepy buy-and-hold things, and you don't take any money out until retirement age. But you are allowed to have multiple 401k accounts, it seems like you could set up one of your 401k plans to actively trade in, then take the penalty at the end and still come out way ahead. It seems that the 401k hinges on how much you can contribute each year to all of your plans combined. I'm not seeing why you can't use one to actively trade in so you don't get clobbered with ordinary income tax charges at every turn in the road. If you don't need the money any time soon, it seems like a good way to be tax efficient with short term trading (i.e. trades of less than one year in duration). I haven't run the math fully on this, but do you see what I'm getting at?