The ABCs of Trading Loss Relief

What do you do when faced with a massive trading loss? explains the ABCs of Trading Loss Relief. You can take advantage of trading loss relief & turn trading losses into cash.

10 – In the life of every trader, there comes a day when you find yourself face to face with a massive trading loss. Sure, your trading skills and experience may help postpone this unpleasant event, but not avoid it altogether.

The ABCs of Trading Loss Relief

The list of doomsday scenarios is almost infinite: maybe, the market moved against you, or perhaps, what you thought would be the next big thing turned out to be just another market bubble.
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Ultimately, the particulars of your blunder don’t matter. What matters, though, is that you can benefit from your misfortune in cash. Mainly, in the form of trading loss relief.

What is trading loss relief?

 Trading loss relief is essentially a tax relief, that you may claim on your tax return when you incur trading losses. Notice, that your tax treatment differs depending on whether you are an intra-day stock trader, a futures & options trader (F&O) or a long-term equity investor.

  • Intra-day trading

In particular, intra-day trading in shares and commodities is considered a speculative business, since there is no asset delivery per se. According to the Income Tax Act, trading losses from speculative businesses can only be adjusted against speculative income. In other words, you have the right to deduct all the business-related expenses from your income, provided that you report your trading activity as the business of buying and selling securities.

Then, you can claim expenses that have been spent to earn this business income, such as your broker’s commission, various transaction fees, trading account charges, internet costs, etc. If any losses can’t be claimed in the same financial year, they become unadjusted trading losses, carried forward for four years.

  • Derivatives trading

In contrast to stock trading, derivatives (futures & options) trading is considered non-speculative. That is, if you report your derivatives trading activity as a business, F&O trading losses come with tax benefits. In case you are engaged in stock dealing, besides F&O, remember to separate your F&O income (and losses) from an intra-day stock trading activity.

When incurred in the same financial year, F&O losses can be offset from other sources of income, such as salary, rental income or interest income. Unadjusted trading losses, carried forward eight succeeding years, are only offset from non-speculative income.

  • Long-term investing

Finally, you may classify yourself as a long-term investor, provided that you possess your equity investment for longer than a year. In this case, your income must be reported as long-term capital gains (LTCG). Since long-term capital gains from stocks are tax-free, you will not be eligible for trading loss relief.

Alternatively, if your stock holding period stretches somewhere between one day and one year, your equity income may be filed under short-term capital gains (STCG) and taxed at 15%. In this case, you have the right to claim trading loss relief.

What is a stop loss trade?

Trading loss relief is an effective post factum measure aimed at downplaying your losses. However, if you’re looking to take a more proactive approach to loss management, a stop loss trade might be just what you need.

In particular, you may address your brokerage and pre-set a limit to the amount of loss you can sustain should an adverse price movement take place. Once a financial instrument reaches your price target, the computer will automatically buy/sell it, executing a so-called stop-loss trade.


When losses storm your trading horizon, make sure to cap them by claiming trading loss relief on misfortunate trades and by setting a stop loss trade on future deals. The former helps you maximise your tax benefits. The latter sees to it that your losses don’t run you into debt. Both tools are suitable for short-term and long-term traders and investors.

About is a fin-tech startup providing an AI-powered trading platform, designed to take trading to the next level. Available on both desktop and smartphone, the trading platform lets users trade CFDs on the world’s top markets including Forex, cryptocurrencies, commodities, indices and more. The company received a $25 million investment from VP Capital and Larnabel Ventures. is licensed by the CySEC.

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