Depending on a trader’s country of domicile, there are different ways in which investment losses may be treated. In the U.S., for example, traders may be able to claim the loss on their income tax return as a short-term capital loss.
Short-term investment assets are those that have been held for one year or less – and this is certainly the case with binary options, as some trades have a duration of only 60 seconds. Typically, investors in the United States may deduct up to $3,000 of a short-term investment loss against other income such as their salary or interest from other investments.
If the trader’s loss for the year is in excess of $3,000 then it may carry over into the following year and it will be considered as a long-term loss. In any case, it is best to first consult with a tax advisor in order to determine the exact amount that may be deducted.
The Bottom Line on Binary Option Losses
While no trader enjoys losing money, the reality is that it does happen. Therefore, it is important to understand how such losses may be treated – as well as the potential amount of such losses – prior to going forward with any investment.
Regardless of what happens with lost funds from a tax or financial standpoint, there is one other potential positive that can come from taking a loss in binary options trading – and that is the learning experience. If, for example, a loss was the result of trying out a new trading strategy, it could be a signal that the trading technique should be modified in order to better ensure a gain on the next trading transaction.