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Administrative advantages, tax sheltered accounts.

Chart Forum » Trading - Systems » Administrative advantages, tax sheltered accounts.

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Username: ehmu

Post Number: 559
Registered: 08-2010

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Wednesday, July 20, 2011 - 04:03 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)

Hi everyone:

I'm writing to share a recent success that will save me a lot of money when trading in my tax sheltered retirement accounts.

Here in Canada, the government has a rule for the banks that they cannot retain any foreign currencies in the "registered retirement account". They are however allowed to keep foreign equities in the account. These are accounts that are tax sheltered until such time as funds are withdrawn from the account.

Now let me explain how this has had a negative affect on my trading in the past. I trade quite a bit on the American exchanges, because I like the liquidity, and the volatility. There are just many more opportunities there as compared to the Canadian Markets. The bank (otherwise broker) charges a .65% spread each time they change money. The up shot to this is that to buy a US equity, and then sell it; the broker gets 1.3% for the two money exchanges, plus their usual commission for trading the shares.

In case you're arithmetically challenged. If you made 5% gross on the trade, and the broker gets 1.5%, then they are taking 30%+ of your gains.

So here is what I have devised and am currently testing. I sold my TZA very close to a peak, and on the same day I replaced it with a combination of UUP and UDN (equal value). Then I requested that the broker net out the FX, meaning that there was no foreign exchange charges, because they took the US dollars from the sale of TZA and applied it directly to the purchase of UUP&UDN.

When the $US goes up so does UUP. When the $US goes down, UDN goes up. The net effect is zero in my account because I have hedged against currency volatility. The most beneficial part of this strategy is that the "Bank" is not eating my breakfast lunch and dinner. Also I am sitting with a US dollar equivalent ready for my next US equity trade. I'm not having to worry about arbitrage between the $C and $US. I will sell my UUP&UDN the same day that I purchase equal value of my next puchase.

Feel free to comment if you can improve on this.

_____ n a m a s t e

Every trade requires an gorgeous seller and an ugly buyer that has enough money.

Not a recommendation to buy or sell equities

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