Online Trading

The Legal Aspects of Online Trading Activities

Have you ever wondered about the laws that apply to your online trading transactions? Are you reporting your purchases, sales, gains, and losses correctly? What happens if you get into a disagreement with your brokerage services provider? Do local laws allow you to acquire every kind of asset under the sun, or are there restrictions about what you can have in your portfolio?

Here’s a closer look at the three main areas of concern for every trader who wants to know about these important topics

Taxes and Evasion Problems

Wherever you live and whatever type of trading you’re engaged in, there are tax laws that govern what you can do, how you are allowed to operate, and how you must report the activity in your account. The good news is that the major, reputable trading platforms and brokers provide detailed financial summaries of everything you do. That makes it easier to prepare year-end or quarterly tax returns. But, having access to detailed reports is not the same thing as actually filling out tax returns.

From the investor’s standpoint, there are several ways to get into tax trouble. The first is by ignoring the PDF reports when it comes time to file your taxes. Even if you didn’t earn a profit for the year, there could still be major taxation consequences related to your account activity. It’s even possible to end up paying too much tax when you don’t properly report losses you’ve incurred over the year.

Perhaps the worst kind of dilemma is tax evasion. When government authorities suspect, based on your account activity, that you are structuring transactions in such a way as to avoid paying taxes, then you could become part of an evasion investigation. That’s why it’s essential to check account records every month, at least, to be sure that all your purchases and sales are reported correctly. Brokers do make mistakes, and it’s your job to check for accuracy. If you don’t, there’s a chance that you could end up on the wrong side of an evasion investigation.

Local Regulations

Regional, national, state, provincial, and other regulations have a direct effect on how people buy, sell, and invest. It’s never safe to assume that because a practice is legal in one nation, like the U.S., that it is legal elsewhere. Many nations strongly control the buying and selling of precious metals and cryptocurrency by their citizens. Likewise, even in places where people are allowed to own gold and Bitcoin, for example, there are special reporting requirements for purposes of accurate taxation. Additionally, CFD trading brokers are not allowed to operate in the U.S. because laws don’t allow traders to buy or sell CFDs.

The U.S. is currently in the midst of a vast transformation of its security laws pertaining to how private citizens buy and sell cryptocurrency. Within the next couple of years, most of the laws on the books right now will be defunct. No one can say for sure how the situation will resolve itself, but the trend is for the IRS to want more and more detailed reporting of cryptocurrencies.

Precious metals have always been a special case that have caused legal trouble for owners at times. The source of the difficulty is that so many folks acquire gold and silver bullion from private sellers. When it comes time to sell, the IRS has no way of knowing what the basis, or cost-price of the asset was. That makes it impossible to measure and tax capital gains correctly. In theory, taxpayers are supposed to report all purchases of precious bullion, but if it’s not done through a broker or licensed, online seller, transactions are nearly impossible to trace. The same is true for crypto transactions in which buyers acquire the coin from offshore, unlisted sellers.

Broker-Investor Disputes

Disputes between investors and brokerage firms have a long and sordid history. Fortunately, there are laws in effect in most nations to deal with the majority of these kinds of complaints. Step one is to read your account agreement carefully when you sign on to a platform. There will be a section about how to resolve disagreements between you and the firm.

One thing to keep in mind, regardless of what the agreement states, is that if a broker can be shown to have committed fraud or outright negligence, in most cases the investor can sue in court for damages. In reality, that can be a long and costly process for everyday investors. The more common ways of settling disagreements is via arbitration or mediation if arbitration solutions don’t work. The bottom line is to pay attention to the contract when you choose a broker and place your money in their care.

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