Single-stock futures have arrived to save the retail trader from his greatest enemy: not losing money fast enough.
These contracts let you bet on individual stocks with leverage. You can control shares you cannot afford. You can amplify gains you will not achieve. And according to people who read tax code for a living, you can trigger wash sale rules, straddle regulations, and constructive sale provisions without understanding a single one of them.
The tax surprises are not surprises. They are just taxes. Retail traders call them surprises because they do not read the instructions before they start trading instruments they learned about from a guy named WolvesOfAlpha on Twitter.
Here is what happens. You open a single-stock futures position because the margin requirements look friendly. You close it at a loss because the stock moved against you, which it always does. You buy shares of the same stock three days later because you are bad at this. Congratulations. The IRS just disallowed your loss under wash sale rules, and you do not know it yet because you think tax planning is something people do in April.
The brokers will send you a 1099 in February. You will forward it to your accountant. Your accountant will explain that you owe taxes on gains you no longer have because you kept trading. You will ask if there is anything you can do. He will say yes, stop trading single-stock futures. You will not listen.
Active retail traders love these products because the word futures sounds professional. It sounds like something a real trader would use. It sounds like you know what contango means.
You do not know what contango means.
Photo by Markus Winkler on Unsplash
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