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Strategies & Market Trends : Technical Analysis - Beginners
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To: TechTrader42 who wrote (11962)12/11/2001 11:12:51 PM
From: kirby49  Read Replies (2) of 12039
 
I thought someone else might have jumped in before this. Well let me give an argument for the 75% side. If shorts were taxed at 300% per your example we wouldn't have a very orderly market. The market makers, floor traders use shorts to keep that market orderly with very short term, profitable trades.

Someone suggested that you don't need any money to short, well tell that to my broker. The margin rules are the same, i.e. 30% for longs and 130% for shorts, depending on the price and exchange. But let's just assume we pay cash. Two investors with $4000 on deposit with their brokers on Jan1 will each open one position and close it before year end. The first shorts 100 GE at 40 on Jan 1 and his account is credited with $4000 (which you can't touch since it's the 100% in that 130%) and he covers at $10 times 100 for a debit of $1000 and a cash balance of $7000.

That day the second investor buys 400 shares of GE at $10 and his account is debited the $4000 and before year end it hits $40 again and he sells and his cash balance is $16000.

One's profit for the year is $3000 or 75% and the second is $12000 or 300%. Time for a new broker and accountant. Hard enough for shorts to deal with unlimited risk versus only 100% risk for longs, now to calculated profits the way you suggest, well it's just too new world, pro forma for me.

Regards

Bob
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