Some Canadian content on this subject would be appreciated and extremely helpful...long overdue topic IMO

Andy

Not sure what you are looking for exactly or even roughly. Are you looking for the whole enchilada, or maybe specific issues related to strategies, or methods, or what to trade (commodities or equities or options etc), entry, exits from trades, working from home vs. an office somewhere else? What hardware to use, or brokers. What to do when you are mobile or on vacation, taxation, psychology, journaling, etc etc. if maybe you presented some questions, many questions, then someone might know or pick on some areas to advise you about. Would help with more specifics, otherwise you may get information you don't need :) Give us more info. and many full-time traders will be glad to help.

re Lauriston:
I guess I'm looking more specifically on the business side of it. I have the strategies, methods, etc of trading worked out. But I was wondering if it was beneficial to actually set up a business (LLC, INC, sole proprietor), and if so, which type of business would be best suited for an individual trader? And I'm also worried about tax issues: should I get an accountant or is turbotax with a service like Gainskeeper good enough? It would also help so see which brokers and trading platforms are recommended, although I know Barron's just ran an article on it. Maybe people could recommend specific brokers for options vs. futures vs forex, etc.

Andy -- I heartily second Bill's recommendation of Alex Elder's books. He doesn't peddle dreams; he tells you just what you are up against, and how to prevail in the (multi-year) struggle to become an "A trader".

In January, I attended Alex's "Traders'Camp" and it was GREAT. 26 traders from 13 countries, trading all different styles. Alex teaches that you're not so much trading markets as trading yourself, and need to develop your own style, preferred markets, and types of risk.

The main area Alex does NOT handle is the question of (US) incorporation and taxation. I have since found one short book (Capital Gains, Minimal Taxes by Kaye A. Thomas 2004) and a more exhaustive treatment (The New Trader's Tax Solution by Ted Tesser, 2005).

From what I've culled from these books: you don't have to incorporate to get tax benefits; if you trade (rather than invest - by a typically fuzzy standard semi-established in tax courts) then you deduct all trading expenses on schedule C. Whether you "mark to market" at year's end is a separate decision, which can only be made (looking forward) when filing a tax return.

Sorry if this all runs together - th preview looks terrible, my my are in there... Here are some references I found when investigating full-time trading:

12.7 Small Business/Self-Employed/Other Business : Income & Expenses
http://www.irs.gov/faqs/faq-kw36.html

Topic 429 - Traders in Securities (Information for Form 1040 Filers)
http://www.irs.gov/taxtopics/tc429.html

A third classification is Trade. A Trader is in the trade or business of buying and selling securities for their own account. You are a trader in securities if you meet all of the following conditions:

-You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation.
-Your activity must be substantial.
-You must carry on the activity with continuity and regularity.

The following facts and circumstances should be considered in determining if your activity is a securities trading business:

-Typical holding periods for securities bought and sold.
-The frequency and dollar amount of your trades during the year.
-The extent to which you pursue the activity to produce income for a livelihood
-The amount of time you devote to the activity.

A trader's business expense are reported on Form 1040, Schedule C http://www.irs.gov/pub/irs-pdf/f1040sc.pdf (PDF), not as itemized deductions on Form 1040 Schedule A. The deductions are not subject to the limitations that apply to Schedule A (2% AGI limitation and special limits on investment interest). A trader gain or loss on sale of securities is reported as capital gain or loss on Form 1040, Schedule D (PDF) unless they have made the mark-to-market election.

If a trader has made a mark-to-market election, gains and losses are reported on Part II of Form 4797 http://www.irs.gov/pub/irs-pdf/f4797.pdf (PDF) as ordinary income. For information regarding the manner and timing of making the mark-to-market election, see Publication 550 http://www.irs.gov/publications/p550/index.html, Investment Income and Expense or Revenue Procedure 99-17, 1999-1 CB 503.

The proper classification of your investment activities is important to determine how income and expenses are to be reported. Investors trade solely for their own account and do not carry on a trade or business. Their securities sales result in capital gain or loss and their deductible expenses are itemized deductions. Dealers sell securities to customers in the ordinary course of trade or business. Their sales result in ordinary gain or loss and their deductible expenses are trade or business expenses. Traders buy and sell securities frequently but have no customers. Their purchases and sales result in capital gain and loss, and their deductible expenses are trade or business expenses.

Even if you engage in extensive securities activities, you are an investor, not a dealer or trader, if you do not seek profit primarily in swings in daily market movements, and do not personally engage in or direct the purchases or sales. An investor trades for profit-motivated reasons such as long-term appreciation, dividends and interest. Whether the activities of an individual constitute trade or business or investment is determined from the facts in each case. These distinctions have been established through court cases.

If your trading activity is a business, your trading expenses would be reported on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship) instead of Form 1040, Schedule A (PDF), Itemized Deductions. Your gains or losses, however, would be reported on Form 1040, Schedule D (PDF), Capital Gains and Losses, unless you file an election to change your method of accounting.

If your trading activity is a business and you elect to change to the mark-to-market method of accounting, you would report both your gains or losses on Part II of Form 4797 (PDF), Sales of Business Property .

A change in your method of accounting requires the consent of the Commissioner and cannot be revoked without the consent of the Secretary. Though there is no publication specific to day traders, the details for traders in securities and commodities are covered in Internal Revenue Code Section 475 (f) and Revenue Procedure 99-17.

References:

Publication 535, Business Expenses
http://www.irs.gov/publications/p535/index.html
Form 3115 (PDF), Application for Change in Accounting Method
http://www.irs.gov/pub/irs-pdf/f3115.pdf

Andy

I have been using Interactive Brokers for the past 3 or 4 years. I try to keep costs down as much as possible in my business as an individual trader. I have been highly satisfied. Low commissions, excellent executions, and interest on cash balances are among the highest, and top notch data feed especially during heavy volume periods. Individual stocks, options, futures and forex are available. I trade stocks and options only. Once you get past the steep learning curve the workstation software is excellent. This broker offers fewer frills than some others but works for me.I prefer the direct software to the browser based access.

I have not found it necessary to formally set up as a business in 22 years. I think that good record keeping is mandatory regardless.

lots of trader ideas/info on this site.

http://www.elitetrader.com/

Lots of guys/gals with BIG egos also. But, if you can wade through the BS you will find lots of good info>

For Canadians, one of the best sources of tax info I've found is, "Tax Guide for Investment Advisors" by John R Mott, printed by Carswell.

For traders trading mainly Canadian stocks, I've found Questrade to be the best broker though I also use Interactive Brokers for futures. For my style of trading I've found Questrade cheaper than IB - because I'm trading mainly Canadian stocks. I believe IB is the hands down winner if you trade a combination of US stocks/options/futures.

For a charting program I've found Amibroker indispensible. Again, if you are mainly trading U.S. stocks, Worden's Telechart is probably a better product, but you can't get Canadian data.

This is a great idea for a thread and am hoping others join in to give their opinions.