Thanks for the CGT confirmation Stew. I have pitched my letter to the tax man accordingly
![Wink ;) ;)](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)
and the decision now rests with him.
This is perhaps a touch personal for a public board but if it helps anyone else in their taxation decisions then it will have been worth posting:
1. “How have you anticipated the amount of profit from a year’s activity?”
I created a rule based mechanical system which clearly indicates when I should buy or sell a futures contract. Because the rules are strict I was able to “backtest” this system against two years’ worth of historical futures data to see how it would have performed. My projected annual profit is an estimate based on an average of these results.
However it is of course very possible that the system will perform worse (or indeed better) in the future than the historical results would suggest. In other words my profits are by no means guaranteed and, despite my precautions, to a large extent subject to the vagaries of, and chance inherent in the market.
2. “Is this expected profit based purely on profits from the buying and selling of shares or does it entail other elements such as the turnover of stock?”
The expected profit is based wholly and exclusively on the buying and selling of futures. I do not hedge these speculative positions in any way.
3. “Would you please let me know any ways in which you minimise risk and secure profits?”
To minimise risk I obey the general principle of cutting losses (immediately liquidating positions that show a loss greater than a predetermined amount) while letting profits run until my system indicates closure of said profitable position.
For instance I place predetermined “stop loss orders” in the market that ensure I will not, except perhaps in extreme market conditions, risk more than 3% of my total capital on any one trade. I will not trade more than four times in one day and I will close out any open positions at the end of each day to avoid the risk of holding them overnight.
4. “Please let me have any other information that you may consider relevant to this decision?”
There is a distinct possibility that (despite my earlier letter) I will be earning some income from freelance proof reading in addition to any profits derived from speculation in the futures market.
I am fortunate enough to own my flat outright (no mortgage) and further live with a partner who, in her capacity as a public servant, earns a very reliable salary that is more than sufficient to support both of us in the event that (or indeed while) my speculative activities are not profitable.
It is worth mentioning that, due to the nature of the method used, the profits arising from my system are irregular and unpredictable. For example it would be entirely possible for me to endure three consecutive months of losses followed by one week of large “windfall” profit.
Although I grandly state my occupation as “professional trader” I am still very much in the learning stages of this “profession” and my annual profit may well reflect my inexperience.
Apart from these (possibly irrelevant) points I cannot think of any other detail that might affect your decision.
I hope this letter answers your questions satisfactorily and I look forward to receiving your decision in due course. If you require any further clarification please don’t hesitate to ask.