Nearly every day I get the opportunity to meet students and recommend custom-tailored tax strategies as part of the Tax Consultation we provide at OTA Tax Pros. We commonly discuss topics ranging from whether to incorporate, how to short in retirement accounts, trader tax deductions, and even how to navigate common expenses such as data fees.
For many traders, data fees are minimal and not an issue. For others, data fees become thousands of dollars each year. And they might be paying too much.
Securities regulation requires exchanges to provide data to non-professionals at a lower rate, so that trading with real time data does not become cost prohibitive for individuals. However, interpretation of who is a “non-professional” is left up to each exchange to define.
Platform data you receive from your broker is actually provided under “subscriber agreements” with each exchange, which define the terms and conditions of the data.
In general, exchanges agree that a non-professional data subscriber (traders) must not be
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A member of any exchange,
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Registered or qualified or engaged as an investment advisor or asset manager,
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Registered or qualified with the SEC or any other regulatory body, or
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Acting on behalf of a brokerage, bank, or investment firm;
And data must solely be used
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For personal or private use, and
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Be limited to managing the subscriber’s own assets.
Under those guidelines, most traders are non-professionals and qualify for the cheaper data fee rates. However, what if you trade through an LLC or corporation?
Many traders have found tremendous tax savings through incorporating their trading activity with either an LLC or corporation structure.
Regardless of whether they’re profitable yet, trading entities have different rules regarding timing of Mark-to-Market elections, start-up expenditures, profit-loss allocation, and more.
But when trading through a company, brokerages may look at the data as being used for a business. Does that make a trading entity a professional in terms of the data fees they pay?
Most futures exchanges would say “no.” The Chicago Mercantile Exchange (CME) allows an “individual, natural personal or small business entity” to qualify as non-professional subscribers, so long as all other non-professional requirements are met.
NASDAQ’s Global Subscriber Agreement states, “Non-commercial organizations solely owned by an individual and members of their immediately family (who themselves are Non-Professionals) utilizing market data solely for their own personal investing may qualify for Non-Professional rates.”
The only exchange which does not explicitly delineate upon this issue is the New York Stock Exchange (NYSE), which provides the majority of data for equities and equities options. While their Nonprofessional Subscriber Policy does allow certain trusts, trading clubs, and day traders to self-certify as non-professionals, the NYSE has commented, “It is the Vendor’s (broker) responsibility to properly classify the status of a subscriber.”
So what about equities day traders with an LLC? There’s still options.
First, talk to your broker and explain your LLC is a non-commercial organization and you self-certify and that you meet the non-professional standards for data fees.
If you run up against a broker with an unbending policy, then shop around. Many larger brokerages offer free or discounted data fees so long as you meet minimum requirements.
If you only want NYSE data to research and track trends of certain ETFs, many brokers offer free delayed data. The data is only delayed 15 min and suffices for the purposes of watching the markets. (Note that live data is required to trade an exchange.)
This content is intended to provide educational information only. This information should not be construed as individual or customized legal, tax, financial or investment services. As each individual's situation is unique, a qualified professional should be consulted before making legal, tax, financial and investment decisions. The educational information provided in this article does not comprise any course or a part of any course that may be used as an educational credit for any certification purpose and will not prepare any User to be accredited for any licenses in any industry and will not prepare any User to get a job. Reproduced by permission from OTAcademy.com click here for Terms of Use: https://www.otacademy.com/about/terms
Editors’ Picks
AUD/USD remains under pressure above 0.6400
AUD/USD managed to regain some composure and rebounded markedly from Tuesday’s YTD lows in the sub-0.6400 region ahead of the release of the Australian labour market report on Thursday.
EUR/USD faces decent contention around 1.0600
The knee-jerk in the Greenback reignited some buying interest in the risk complex and pushed EUR/USD to three-day highs near 1.0680, rapidly leaving behind the recent yearly low around 1.0600.
Gold eases despite risk-off mood
Gold trades in a relatively tight range near $2,390 in the second half of the day on Wednesday. In the absence of high-tier data releases, investors keep a close eye on headlines surrounding the Iran-Israel conflict.
Ethereum trades around the $3,000 support following a surge in validator queue
Ethereum (ETH) continued a sideways movement on Wednesday as investors seemed to be waiting for an upward or downward price catalyst. Despite the price stagnancy, the ETH validator queue - possibly fueled by the DeFi restaking boom - rose sharply.
Australia unemployment rate expected to rise back to 3.9% in March as February boost fades
Australia will publish its monthly employment report first thing Thursday. The Australian Bureau of Statistics is expected to announce the country added measly 7.2K new positions in March after the outstanding 116.5K jobs created in February.
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