According to Investopedia, day trading is a type of trade executed during the day to get enormous profit margins on a specific asset, stocks, or property. Day trading has proven to be very lucrative and has nullified the need for large financial institutions, trading companies, or even brokerages for trades to be carried out. The question now is who is eligible to trade? Can H1B Visa holders involve in day trade?
Day trading while on an H1B Visa is perfectly legal since there aren’t any regulations differentiating investing from trading. However, it is not advisable since your employer owns the H1B visa – it was solely issued to you to come to work in a foreign country.
But, if you want, you can visit your immigration attorney to help you change your visa type if you feel ready to begin day trading fully.
H1B investors can, however, participate in delivery-based trading or swing trading. Delivery-based trading involves trading stock or valuable assets at a particular period, say once a week, storing them up for sale later. In the rest of this article, we will provide you with helpful tips about involving in day trade while on an H1B visa; let’s begin!
What is Considered Day Trading in USA?
In the US, day trading refers to purchasing and selling a smaller amount of equities repeatedly within the same day. A person who buys and sells these securities or stocks without selling them that same day cannot refer to his/her business as a day trade. Day trading is mainly carried out to avoid any possible or unmanageable risks and losses which might occur due to a fall in price between a day’s close and the price the next day.
Day traders make use of margin loans and other forms of leverage. Margin loans in the United States are permitted by Regulation T with only initial leverage of 2:1 being allowed. Also, Financial Industry Regulatory Authority (FIRA), individuals or day traders who are involved in more than two or three trades a day – termed as Pattern Traders are required to have a minimum of $25,000 in the form of equity in their accounts.
Are There Any Special Rules That Apply to Day Trading in USA?
Trading in the US is easy and convenient for everyone who intends to participate in day trading. But for H1B Visa holders, there are some rules and regulations set aside to guide them on their stock and security trading journey. Understanding these rules will help H1B stock traders benefit from the stock market and avoid any unwanted risk and losses while trading.
Earlier in this article, we mentioned one of these laws by FIRA (Financial Industry Regulatory Authority), but we will be discussing them further. So! The answer is yes; there are specific rules which apply to day trading in the US as purported by FIRA.
Minimum Balance rule
The first rule is that every day trader with or without an H1B Visa should have at least twenty-five thousand dollars in his/her account. This rule is to help in regulating the liquidity of the stock or security buyer. If the day trader’s total assets, equity, and capital fall below $25,000, he/she would not have any buying power. It is also necessary to note that only cross-guaranteeing assets cannot meet this requirement; you must have a combination of cash and equity in the form of securities to be eligible.
Taking Stock of existing sale conditions
For your trade to be considered a day trade, you must note the condition and current position of your stocks from the previous day. The above stated is the second rule, and it helps traders monitor their assets.
Buying Power
The third rule is regarding buying power. It has been stated that the trading power of a day trader is four times the New York Stock Exchange (NYSE) when business is rounded off by the previous day. A margin call can be issued if a day trader exceeds this limitation; hence, using the ‘time and tick’ day trading calculation method is very advisable.
Minimum requirements
The minimum requirement for an H1B Visa holder to perform day trade is for him/her to make a deposit that meets the required equity. The funds must meet the margin calls or the required equity and must not be withdrawn from the account within at least two business days. This rule is the fourth rule and is very important for individuals who want to trade in the US.
Is Day Trading Legally Allowed on H1B Visa?
As mentioned in the introduction, day trading is legal for H1B Visa holders; as far as they meet the specified requirements. Also, their employers need to approve their decision to participate in day trading to avoid complications. H1B Visa holders who work at Finance/Asset management companies would need to meet the compliance departments to get permission necessary for trading shares. Such shares can be held for a duration of thirty to one hundred and twenty days.
Such policies vary depending on the firm – since employers and founders build their empires based on different systems, ideas, and views. For you to avoid any problems arising from trading while under an H1B Visa, you must review your employment contract with your employers. You should also note that your employers frequently monitor your activities, so trade with caution.
Tax Liability of Day Trading for H1B Visa Holders?
As specified by USCIS, investing, or making stock trades as an H1B visa holder is similar to foreign body investing. The only difference here is the visa type – since the H1B Visa is handed to specific individuals for work/job purposes. If the H1B Visa holder chooses to trade, the individual has to review the company’s employment contract –and if permitted, he/she will be open to government taxes.
Since there is no such thing as tax-free trading in the US, you will need to understand the rules, obligations, regional differences, and how these taxes are calculated. Understanding these principles and practices will help you know why you’re being taxed and how it works.
However, day trading should not be considered a long-term investment because holding them for more than a day would fall short of the day trading description.
To better drive the point of tax liabilities in day trading, here are some details you might need concerning day trading taxes:
Day Trading Taxes
Since filing taxes are somewhat hard and complicated for traders, some tax filing companies aid day traders in effectively and conveniently filing their taxes. If you are a newbie in the financial trading market, you might be informed that the tax structure is based on long and short-term investments.
Long-term investments can be described as stocks and securities which have been held for more than a year. These investments are taxed at lower rates compared to short-term investments, which are held for less than a year. Traders having up to $9,330 as their gross annual income would have a regular tax rate of 10%, those who have gross yearly income falling between $9,330 and $37,950 would be taxed regularly at 15%, etc.
Taxes can be filed on either 8949 or Schedule D. Traders who want to file taxes are permitted to deduct a sum maximum of $3,000 if they experience capital losses annually. On the other hand, married traders who use different filing statuses are allowed a sum maximum of $1,500.
Trading in the US with an H1B Visa comes with many limitations, but you can overcome these limitations once you set your mind to it. H1B Visa holders earn a lot annually and lose their money due to unforeseen events and the lack of an extra income source. Most of these H1B Visa holders opt for trading, which falls into two categories – day trading and delivery based trading.
Day trading can be beneficial to H1B Visa holders with the aid of a proper brokerage. However, self-trading while one is on an H1B visa isn’t advisable due to the possible conflict it might have with one’s H1B job. Day trading is considered full-time work, except when the trader performs it once in a while in which case it is deemed to be delivery-based trading.
Delivery based trading is excellent for H1B Visa holders and also guides them on their path to trading in the equity, stock, and security market. The only problem with delivery based trading is that supplies are kept for a long time and might lose value after a long time.
In summary, both are very great and would yield positive results for H1B stock traders. Day traders might resort to making investments in real estate or other investment types. If you’re considering this, don’t worry or be afraid that you’ll be viewed as a regular foreign investor; tax filing is similar to other foreign buyers in the US. So, start making plans now and put your money to fair use!