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All You Need To Know About Holding Period

Posted by on Jun 9, 2017 in Uncategorized | Comments Off on All You Need To Know About Holding Period

When you are investing in the financial markets, there is a lot that you need to know about. One of the things that an investor should be aware of is a holding period. This is an important aspect of investing in financial products because it determines the value of a share.

When you are trading online, or are using an automated trading platform such as the Fincrowd App for your trades, then, it is important to figure out holding periods so that you can make your trades accordingly.

Define holding period

When someone mentions holding periods, they are referring to the time frame within which any investment can be attributed to an investor. For instance, if an investor has invested in government bonds for 6 months, then, those 6 months are considered a holding period.

However, if you have a long position, then a holding period can refer to the time between the buying and selling of an asset. If you are a long-term investor, then, this could mean anywhere between a year to much more. There are also short holding periods.

In a short sale, a holding period is when a seller buys back the assets. When the assets are given to the lender to end the short sale. In his instance, the holding period is one day.

Other things to know about holding period

Since a holding period is time-centric, it means that the value of an asset as well as taxations on it are determined by the holding period. Long-term investments are taxed at lower rates, so, when you are holding a long-term stock or asset then the capital gains on it will be taxed at a lower rate. Anything longer than a year is referred to as a long-term investment.

A short-term holding will be taxed at a higher rate, so, when you have a short sale with an asset, the chances are that your capital gains from it will be taxed at a higher rate.

How to calculate the holding period

Since most assets are bought and sold during the trading day, the best way to calculate the date of holding from the date after a particular asset or security was purchased. This calculation also helps when you are trading online through automated platforms such as Fincrowd app.

For instance, if you have bought 50 shares on Mar 1, 2017, then you begin to calculate your holding period from Mar 2, 2017. If you have disposed of those shares on May 1, 2017, then, your holding period will be calculated from Mar 2 to May 1.

There are various rules that govern a holding period – for instance, someone can receive a gift stock and this holding period is carried forward from the donor to the recipient. If the stock has decreased in value then a recipient’s holding period begins the day after receiving the gift. The same goes for receiving stock dividends as well.

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