Has anyone here actually traded in the stock market????? This post as well as most of the replies, sorry to say it, are completely and utterly
uneducated and wrong. Such a tax would destroy the stock market, stop all trading except for the very long trades, dry up all liquidity, prevent you
from getting loans, etc and tank the entire economy. Sadly if the majority were able to make such laws, they would destroy themselves from ignorance.
You all see this big cash cow but don't realize that by taxing it you will be killing the cow.
What I'm about to explain is not exactly how it is but close so you can understand. Let's suppose I have $100,000 (to make it easy) to day trade with.
If I traded it all at once, using margin (I can borrow), I would actually have almost 400,000 to trade with if buying (wagering it will go up) and
not shorting (wagering it will go down...complicated but you can't use as much when shorting). I wouldn't risk all of that at once, but it will help
in this example to do so to illustrate. Suppose I trade the full amount on the S&P500 index corollary etf fund called "SPY" at around 154.75 and sell
it ten minutes later at 155.02. That is a gain of 0.174% but because of margin I gain 4 times that or about 0.7% (but if I was wrong I would have
lost 4 times as much) and on $100,000 that is a gain of $700. Now what would the transaction cost of 1% be on $400,000? $4000. So I make $700, pay a
transaction fee of $4000 and am now in the hole $3600, not including the friction loss (cost of trading, etc.). Even if the transaction tax were on
the $100,000 before margin then I lost $300 ($700 - $1000 = -$300 !!!!!
And traders don't win every time, not even the banks. In fact, very good traders win only about 60% of the time. So how would you like to pay a
transaction tax also on the 40% of the time when you lose 0.7%, making it a grand total of -$4,700 or -$1700 net for the trade?? And this is all an
oversimplification. Many traders will gradually buy into a stock and gradually sell it as well.....many transactions that make up the same 0.7%
profit (in this hypothetical example that depended on a perfect trading signal at the particular time). But the same thing applies to the big banks.
They just do it even faster and far more complicated trades. Most of the big banks trade with computers at super high speed, over and over and
The whole idea of a transaction tax is completely absurd. If there was a transaction tax of that size, the whole thing would come to a screeching
halt, and there would be no transactions to tax. You would stop all of that....the big guys who do probably 80% or more of the trades and also us
little guys, you would stop us as well. I would have to look at only trading very long term....like weeks to months so that I only have a 2
transactions (a single buy and sell) with a gain (hopefully) that outweighs the transaction tax. Or I would have to look for even riskier things to
trade but those are harder to trade, to predict, and are less liquid (harder to buy in and out of), etc (way harder to trade). So you essentially
shut down the stock market. The only thing that makes sense is the capital gains tax. At the end of the year, after I have computed losses and wins
and eeked out a small profit, then you can tax it. Don't tax the method but the final result.
Such questions should not be left to the average American, and definitely not the average politician!! It is like the average American making
delicate brain surgery decisions or even incisions, thinking they know as much as the surgeon. Most of us know nothing about it. Here is a perfect
example. In the 90's, the govt taxed luxury yachts to try to collect more money from the rich. Well, it didn't work as intended. The rich simply
spent money on other things and the people that made yachts and worked for these companies all suffered with lost income and jobs!
23-3-2013 by jon123 because: error
edit on 23-3-2013 by jon123 because: error