The Hidden Tax Advantages of Futures Trading
Disclaimer: I am not a CPA. This is for educational purposes only. Consult a tax professional.
One of the biggest reasons wealthy traders prefer futures over stocks/options is the tax treatment. It is called Section 1256 of the tax code.
The 60/40 Rule
If you day trade stocks (like SPY or QQQ) and hold positions for less than a year, 100% of your profits are taxed as Short-Term Capital Gains. This is taxed at your ordinary income bracket, which can be as high as 37% (Federal).
Futures contracts (like ES, NQ, CL, GC) are different. No matter how short the trade (even if it's 5 seconds), your profits are split:
- 60% are taxed as Long-Term Capital Gains (max 20%).
- 40% are taxed as Short-Term Capital Gains (max 37%).
The Math
If you make $100,000 in stocks, you might pay ~$37,000 in taxes.
If you make $100,000 in futures, your blended tax rate is significantly lower, potentially saving you $5,000-$10,000 or more depending on your bracket.
This is an automatic "edge" that the government gives futures traders. Use it.
Risk Disclosure & Disclaimer
Educational Purposes Only: The content provided in this blog is for educational and informational purposes only. It does not constitute financial, investment, or trading advice. Young Money Investments is not a registered investment advisor, broker-dealer, or financial analyst.
Risk Warning: Trading futures, forex, stocks, and cryptocurrencies involves a substantial risk of loss and is not suitable for every investor. The valuation of futures, stocks, and options may fluctuate, and as a result, clients may lose more than their original investment.
CFTC Rule 4.41 - Hypothetical or Simulated Performance Results: Certain results (including backtests mentioned in these articles) are hypothetical. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.
Testimonials: Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.
