A proposed House of Representatives bill-HR 1068 would tax each buy and sell order by up to 25 basis points of the transaction value. While it is hard to say at this point whether the bill will be passed I encourage active traders and investors in US markets to do what they can to oppose this bill. Here are some of the reasons why this will affect everyone. But first, granted it is possible that as traders and investors we can always trade a different market, but foreign investments are capped (as far as I know, I am not a US citizen so I can not say that with absolute certainty), and also the flow of funds out of the US to foreign markets hurts the US economy. But here are some further reasons this bill should not go through.
-day traders and market makers who make money on thin margins already would be forced out of the market.
-65% of liquidity comes from short term traders squeezing small profits. If these traders leave for other markets, liquidity dries up and everyone suffers. Spreads widen, and transaction costs increase. This cost is not going to be assumed by brokers, but rather by investors (the ones remaining). Trading costs would likely increase because mass liquidity allows for smaller charges per transaction. Decrease the number of transaction and brokers will raise prices to compensate.
-Price transparency and thorough analysis is generally reserves for high volume stocks. If you have every traded an illiquid security, you know that prices can be very random and hard to analyze. A decrease in volume would create this environment in many many more securities.
-Traders would avoid the tax, and hence the US market. This will pull funds out of the US economy and those funds will go into foreign countries.
-Companies are more likely to list on foreign exchange, or move their current listing to foreign exchanges so that their securities can be traded actively as they are currently.
-The tax will not generate the revenues expected by the government. Projections for profit are based on current market conditions, but the tax would impact market conditions and change them overnight. In effect, the money brought in would be nothing what is expected thus making the tax pretty much null and hurting a lot of people in the process.
Likely this bill is too flawed to pass. But with the current crisis it is just possible that something which is so obviously ignorant as this is could be pushed through. Asinine decisions are being made all over the place in the current economic situations (and it was dimwittedness that got us into the mess in the first place), therefore it is more prudent to be proactive and than to sit on ones hands thinking this bill is too stupid to pass.
If you work for a firm, I encourage your office to voice concern (for your own sake), or do what you will to prevent his bill from going forward. I like in Canada, and I trade currencies, so this would not directly hurt me. I write this so you are informed of something that is occurring and can make your own decision on it – and I do encourage you draw your own conclusions, these are simply mine.
~Cory Mitchell
http://everythingdaytrading.com (another site to check out)
Tags: day trading, daytrading, investing, investors, market analysis, market commentary, stock, Stock Market Analysis, stocks, tax bill, tax reform
Proposed Tax Bill Could Cause Major Problems for US Traders
A proposed House of Representatives bill-HR 1068 would tax each buy and sell order by up to 25 basis points of the transaction value. While it is hard to say at this point whether the bill will be passed I encourage active traders and investors in US markets to do what they can to oppose this bill. Here are some of the reasons why this will affect everyone. But first, granted it is possible that as traders and investors we can always trade a different market, but foreign investments are capped (as far as I know, I am not a US citizen so I can not say that with absolute certainty), and also the flow of funds out of the US to foreign markets hurts the US economy. But here are some further reasons this bill should not go through.
-day traders and market makers who make money on thin margins already would be forced out of the market.
-65% of liquidity comes from short term traders squeezing small profits. If these traders leave for other markets, liquidity dries up and everyone suffers. Spreads widen, and transaction costs increase. This cost is not going to be assumed by brokers, but rather by investors (the ones remaining). Trading costs would likely increase because mass liquidity allows for smaller charges per transaction. Decrease the number of transaction and brokers will raise prices to compensate.
-Price transparency and thorough analysis is generally reserves for high volume stocks. If you have every traded an illiquid security, you know that prices can be very random and hard to analyze. A decrease in volume would create this environment in many many more securities.
-Traders would avoid the tax, and hence the US market. This will pull funds out of the US economy and those funds will go into foreign countries.
-Companies are more likely to list on foreign exchange, or move their current listing to foreign exchanges so that their securities can be traded actively as they are currently.
-The tax will not generate the revenues expected by the government. Projections for profit are based on current market conditions, but the tax would impact market conditions and change them overnight. In effect, the money brought in would be nothing what is expected thus making the tax pretty much null and hurting a lot of people in the process.
Likely this bill is too flawed to pass. But with the current crisis it is just possible that something which is so obviously ignorant as this is could be pushed through. Asinine decisions are being made all over the place in the current economic situations (and it was dimwittedness that got us into the mess in the first place), therefore it is more prudent to be proactive and than to sit on ones hands thinking this bill is too stupid to pass.
If you work for a firm, I encourage your office to voice concern (for your own sake), or do what you will to prevent his bill from going forward. I like in Canada, and I trade currencies, so this would not directly hurt me. I write this so you are informed of something that is occurring and can make your own decision on it – and I do encourage you draw your own conclusions, these are simply mine.
~Cory Mitchell
http://everythingdaytrading.com (another site to check out)