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Forex Accommodation Trading

Accommodation trading is very common in the financial world. In plain terms it refers to that trading or financial agreement where one trader or a dealer accommodates another one by agreeing into a non competitive deal or sale order. Often such a deal is done between traders who usually do illegal trading. Accommodation Trading is prevalent in almost all forms of business trading but very little known.

Usually accommodation trade happens or occurs between two traders who agree to exchange something which have some financial value. The item agreed upon can be anything and usually decided by both the parties initially. The most common thing that people usually find it good as the item of value is share or stocks. As said, traders usually exchange shares or stocks at prices well under the market value, which enables or allow the trader to realize a large loss of capital on the shares. Most of the time such a deal revolves around some illegal matter like cheating the tax system.

Let us take up an example to understand the whole process which involves in a deal of Accommodation Trading. Let's say there are two traders “A” and “B”. “A” procured some company shares at a cost of $60 per share. To get away with the tax season or something like that “A” decided to transfers the stocks to “B” at a lesser price of $50 per unit share. As it looks like “A” incurs a loss of $10 per unit share. However in real sense he just lowered the taxes paid by him on the capital gains from other investments. And after all the taxes cloud fades away “B” transfers the same back to “A”. This results in more gain then loss. This trade is also sometimes known as “wash sale”, but essentially it's just a form of Accommodation trading.

Accommodation trading or more specifically, wash sale is illegal in many countries internationally. Particularly in developed countries like US and UK, special tax rules apply which doesn't allow such practice. The loss is summed up to the newly acquired capital. Sometimes tax auditors consider the whole practice illegal even when such regulations are not in implementation law wise. They consider such transaction as illegal on the ground that such a transfer showing loss, was framed up only to reduce the tax liabilities. Such a framework is quite existent in Australia and other countries.

As per IRS in United States, a transaction is supposed to be categorized as wash sale, when somebody sells or trade in stock and securities by incurring a loss and then, within a span of 30 days after or before the sale, the dealer tries to buy similar stock or securities, finalize a option or contract to buy similar stock and transaction alike.

Even if you are able to get away from the domain of law, not always Accommodation Trading or wash rule have desirable effect. Rules apply even for illegal trading. Small issues of legalities are very common in the world of money and finance. It's just that we should not go too far, that it becomes impossible to handle things within our grasps.