Stocks & Commodities V. 29:5 (45): Q&A by Don Bright
MARK TO MARKET ACCOUNTING
You have written about the tax advantages of being a professional trader versus a retail trader. You also mentioned something about mark to market accounting. Could you expand on these points? —JBelliott
Sure, glad to shed some light on this. If you were to buy 1,000 shares of GE at $20, yet it is now trading at $21, you have a mark to market profit of $1,000, even though you haven’t sold the shares yet. In my mind, this gives a better and truer reflection of where you really stand. On the other end, if you bought 1,000 shares of Google [Goog] a few months back at $640, and it’s now trading at $575, you have a mark to market loss, but not a capital gain loss. Some retail traders tend to almost kid themselves by saying, “I haven’t really lost any money because I haven’t sold the stock yet.” Well, as cute as that sounds, you really have lost money, no doubt about it.