One valid reason for trading currency futures, instead of cash FX, highlighted in the Refco case: http://www.cme.com/about/press/cn/05-138CMERefcoStatement16261.html CMEâs clearing member, Refco, LLC, is a subsidiary of Refco, Inc., but is a separate company with its own accounts, assets and customers. These accounts, assets and customers are protected through a comprehensive federal statutory and regulatory regime and other financial safeguards and risk management protections provided by the CME Clearing House. All customer funds are required to be segregated from firm assets, held in specially identified accounts and are not subject to any creditors' claims against the firm.
How are profits from currency trades taxed? I know how stock and futures profits are taxed but have not seen anything on fx. Just curious.
You can elect to have Forex Spot Currency profits taxed as section 1256 contracts (by option out of section 988). Like futures, 60% taxed @ long term capital gains rate - 40% taxed @ short term capital gains rate. To opt out of IRC 988, you simply claim that you elected out of IRC 988 to enjoy the beneficial Section 1256 treatment. Most accountants aren't overly familiar with this but bring themselves up to speed once you mention section 1256 and IRC 988.
I don't think you can for spot forex. rather say not clear since there is no term "spot or cash" for forex transaction descrtption in IRA doc. I am not an expert but that's what I heard from the most of CPAs. I would file as normal captial gain until IRA clearly states that 60/40 splits applies to spot forex also.
Currency / Forex Tax "Here is where the big tax uncertainty comes into play. Notice that IRC 988 does not specifically mention that you may elect out of 988 on spot forex. This glaring omission unfortunately leads many tax professionals to shortsightedly concur that spot forex may only be treated with ordinary gain or loss treatment." "We argue that you can dig deeper to find a way to treat spot forex as IRC 1256, as long as you play it safe and also elect out of IRC 988 on spot forex too." http://www.greencompany.com/EducationCenter/GTTRecCurrency.shtml