# Accounting for traders



## dancq (18 July 2015)

Apologies if post is in the incorrect thread.
Any accountants that specialise in providing accounting for traders, please pm me.
It seems a hard ask to find a reliable and savvy accountant who can provide services for a trader who trades daily on international cfd/spread bet and forex, so any recommendations would be appreciated.
Thankyou
Dan.


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## rbd (17 August 2015)

With 51000 FX traders in Aus, there must be some who can recommend an accountant with experience in doing tax returns for FX traders.

Any recommendations?
In particular for someone in Melbourne?

--
Rick


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## ThirtysixD (17 August 2015)

any accountant should be able to do it

if holding periods are over 12 months all you need to do is add up gains/loss and deduct costs incurred


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## Nortorious (17 August 2015)

ThirtysixD said:


> any accountant should be able to do it
> 
> if holding periods are over 12 months all you need to do is add up gains/loss and deduct costs incurred




And if they are less than 12 minutes in some cases?

I don't trade Forex or Futures at this stage but even with my stock trading activity, I don't always hold for 12 months (at the moment I have no stocks over the 12 month mark). 

Interested to find out about this as even a wealth consultant/accountant I met with recently (charging $300+ for the hour) seemed to be fairly amateurish with the advice so I'm learning about it myself. The other aspect is because they don't understand it, they assume that we as traders/amateurs aren't professional in our approach and merely Joe average on the street.....


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## ajcode (5 September 2015)

*Re: Accounting for traders (The Complicated Way)*

Well if you go to H & R block, they will tell you something like this:

(Net Profit/Loss) = (Revenue/Sales) less (Cost of Goods sold) less (Expenses).

And you need to supply H & R block with all this information, not just profit/loss. This is because 

(a) This is how their software works;
(b) I think the ATO needs to know how much money is flying around or in and out of the country and;
(c) I don't think they know exactly what they are doing.

So what does all this mean in terms of trading?

Net Profit/Loss: This is pretty self explanatory, you either lost money or made money. This is the stuff the trader only wants to calculate, but unfortunately trading needs to be treated like a business.

Revenue/Sales: This is the total $ earned from ordinary business operations, so in terms of trading, the Sell Turnover/Value (i.e. Sell price x quantity sold). Extras such as Dividends need to be treated separately in another spreadsheet column.

Cost of Goods Sold: This is the cost of inventory at the beginning of the period plus inventory bought during the period less the cost of all unsold stock, but in terms of trading, it's just the cost of stock bought, which is the Buy Turnover/Value (i.e Buy price x quantity bought).

Expenses: This can be (but not limited to) Brokerage and Finance Costs/Swap. You could add other costs such as paying for live data and any other expenses that are directly related to trading (e.g. electricity, broadband connection fees etc). I think H & R block has a separate section for this and I think they will also tell you that if you get audited, you need to be able to prove that these expenses are part of your trading business. For example making sure that you are trading x hours a week using a diary to be able to claim ongoing broadband connection fees etc.

What we really need to supply the Tax Agent with, is the following variables in brackets:

(Total Net Profit/Loss) = (Total Sell Turnover/Value) less (Total Buy Turnover/Value) less (Total Expenses/Costs) plus (Total Dividends and other extras)

The tricky part is calculating the turnover for Instruments such as Forex, Overseas Indicies/Shares, Futures, Commodities etc., because you need to convert the turnover to the currency in which you are storing your money ($AU in Australia) at that current point in time. I call this the currency multiplier. This is a pain in the ..., and sometimes you need to estimate it as I will show in the following worked example:

So here I have placed a few trades in my demo mt4 account.




and here is the spreadsheet I would show to my Tax Agent:




Now looking at the first trade EUR/USD, as USD is the quote currency, the buy and sell prices are in USD, but luckily the profit is in AUD so we can calculate the currency multiplier (USD/AUD in this case) using the following equation:

Currency multiplier = trade profit / ((sell price - buy price) x lotsize x quantity per lot)
= 14.39 / ((1.11091 - 1.11081) x 1 x 100000)
= 14.39 / (0.0001 x 100000)
= 14.39 / 10
= 1.439

Once we have the currency multiplier we can calculate both the Buy and Sell Turnover/Value (in $AUD) as follows:

Buy Turnover/Value = buy price x lot size x quantity per lot x currency multiplier
= 1.11081 x 1 x 100000 x 1.439
= 1.11081 x 143900
= $159845.559

Sell Turnover/Value = sell price x lot size x quantity per lot x currency multiplier
= 1.11091 x 1 x 100000 x 1.439
= 1.11091 x 143900
= $159859.949

And we continue doing this for all trades. The only problem is when we have a trade that gets out at Break Even. Like in the GBPUSD trade (circled in red), where the Buy Price equals the Sell Price. We cannot calculate the currency multiplier using the above method, so we have to estimate it. As USD is the quote currency, we need to estimate the value of AUD/USD at around that time and take the reciprocal of this value (1/AUDUSD) which is USD/AUD. So looking at the chart at that time, I saw AUD/USD at around 0.693. So USD/AUD = 1/(AUDUSD) = 1/0.693 = 1.443

Now adding up the totals we can now solve the tax agent equation as follows:

(Total Net Profit/Loss) = (Total Sell Turnover/Value) less (Total Buy Turnover/Value) less (Total Expenses/Costs) plus (Total Dividends and other extras)

$74.92 = $804495.22 - $804420.3 - 0 + 0 (As seen in the blue circles)

We don't have any costs because we exited the trade on the same day. Otherwise a swap cost would show up in MT4.

Your Tax Agent would be very happy if you did this, but you would not get any discounts. If you had Dividends (e.g. trading shares/share cfd's), then they would probably charge you for that also.

Hope this helps 

Andrew.


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## ajcode (6 September 2015)

*Re: Accounting for traders (The Complicated Way)*

Small correction, I forgot to re-calculate the totals in the spreadsheet so the equation should read:

$74.92 = $833876.38 - $833801.46 - 0 + 0

Now as ThirtysixD says

"if holding periods are over 12 months, all you need to do is add up gains/loss and deduct costs incurred"

So how does the Tax equation look for trades held over 12 months or trades still open at end of financial year?

Revenue/Sales: Since you haven't sold the instrument you haven't collected any profit/loss, but extras such as dividends paid to you in the financial year would need to be included. If you partially sold the instrument, you would need to include sales figures here.

Cost of Good Sold: This is cost of buying the instrument less the cost of it being unsold. So this would be a big fat zero unless you partial sold some of the instrument.

Expenses: This would be the costs involved in holding the instrument for the duration of the financial year e.g., commission, financing costs etc.

Hopefully this clears things up from a H & R block point of view, but then again I am not an accountant. If I was then none of this would make any sense LOL 

Cheers,

Andrew.


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## ajcode (12 March 2016)

Thought I'd add a link to my Trade Tracking Spreadsheet Thread here as I believe it is relevant.

https://www.aussiestockforums.com/forums/showthread.php?t=30655

I use a slightly more modern method to do things. Instead of Currency Multiplier, I use the Currency exchange rate relative to the country you do your tax in. Makes things look a little neater and hopefully less complicated. 

Cheers,

Andrew.


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