Crystallisation definition

What is crystallisation?

Crystallisation is the term used when a trader or business closes a position and then reopens an identical position immediately.

In doing so, they are able to balance out the net value of their assets by quickly realising a loss or profit, without losing the position that they believe can still bring more profit. Mostly this is done for tax purposes: allowing a trader to realise a capital loss and pay any charges on it immediately.

Most countries have tax regulations in place to prevent the practice of crystallisation.

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Pros and cons of crystallisation

Crystallisation of a position is useful when needing to realise a capital profit/loss for tax recording purposes, as required or advised by a tax accountant, but still wanting exposure to the market. The cost involved in employing this strategy is the second lot of commission or spread payable.

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