Derivatives are an interesting alternative for investors. With the growing interest in investing through brokers, they are becoming a popular choice. They enable rapid investment growth. They also carry greater risk, and therefore, can lead to rapid losses. But what are options, futures, and contracts for difference (CFDs) and how do they differ?
The common denominator of all derivatives is that they do not inherently represent any value. Instead, their value depends on the value of the underlying asset (e.g., a stock, currency, or commodity).
Futures contracts and options hedge the purchase or sale price of a given asset. While the holder of a futures contract is obligated to buy or sell at a specific price, in the case of options (as the name suggests) they have the option to execute the transaction, but are not obligated to do so.
For the average investor, however, the most important instrument is the CFD (contract for difference). It represents a type of bet between the issuer (usually a broker) and the investor. The investor bets on the future price movements of a given asset. If the price matches their predictions, they gain; if not, they lose. CFDs often utilize financial leverage, allowing for greater profits or losses. While futures contracts are traded on an exchange (where sellers and buyers meet), CFDs are traded off-exchange. A CFD does not necessarily secure a physical asset.
When investing your money, it's worth checking exactly what you're investing in. Brokers often offer CFDs on cryptocurrencies. Purchasing such a contract doesn't mean you own Bitcoin or Ethereum. This also has tax implications, as contracts for difference (CFDs) and cryptocurrencies are treated differently.
When investing in CFDs, you'll pay tax on the profit you make from executing the contract. This tax will be 19% of the difference between the amount you invested and the amount you receive.
Tax settlement will be simple for those using brokers based in Poland or with a branch here. They will submit a PIT-8C form by the end of February, which simply needs to be copied into the investor's PIT-38 form. It will be a bit more difficult if you use brokers who don't issue PIT-8C forms. In such cases, you'll need to complete the settlement yourself. In addition to the investment income, you'll also need to report expenses. Tax-deductible expenses include commissions on opening and closing transactions and currency conversion fees. Tax reports and transaction histories, which brokers provide to their clients, can be helpful.
Remember that you are also required to file a PIT-38 form if you close your investment with a loss. You can then carry that loss forward in subsequent years.
Next week we will look at tax returns for cryptocurrency investments.
If you would like to consult your tax settlements from the stock exchange or entrust them to specialists, please contact our office.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of February 14, 2025
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