Accommodation Trading

DEFINITION of 'Accommodation Trading'

A type of trading in which a trader accommodates another by entering into a non-competitive purchase or sale order. An accommodation trade is often executed when two traders are participating in illegal trading.

BREAKING DOWN 'Accommodation Trading'

An accommodation trade could occur when two traders agree to exchange a stock for a price well below the market value, allowing the seller to realize a large capital loss on the shares. For example, suppose that Bill purchased stock in Company XYZ at $55 per share. With tax season coming soon, Bill decides to sell the stock to Joe for $45, even though the shares are currently trading at $60. Bill realizes a capital loss of $10 per share, which he can use to lower the taxes paid on any capital gains on other investments. After the taxes are filed, Joe sells the stock back to Bill at $45. This trade, also known as a wash sale, allows Bill to cheat the tax system, while never actually losing any value on the stock.

RELATED TERMS
  1. Tax Selling

    A type of sale whereby an investor sells an asset with a capital ...
  2. Non-Competitive Tender

    One of the two bid processes for buying debt issuances. Non-competitive ...
  3. Accommodation Paper

    A negotiable instrument that provides a third-party promise of ...
  4. Bill Of Sale

    A document that details in writing a sale of goods or transfer ...
  5. Capital Gains Tax

    A type of tax levied on capital gains incurred by individuals ...
  6. Specific-Shares Method

    A personal financial accounting method that, when used properly, ...
Related Articles
  1. Personal Finance

    Here's How to Deduct Your Stock Losses From Your Tax Bill

    Learn the proper procedure for deducting stock investing losses, and get some tips on how to strategically take losses to lower your income tax bill.
  2. Managing Wealth

    Investment Tax Basics For All Investors

    Nothing can be said to be certain, except death and taxes even in your investments.
  3. Personal Finance

    Capital Gains Tax 101

    Find out how taxes are applied to your investment returns and how you can reduce your tax burden.
  4. Financial Advisor

    A Day In The Life Of A Day Trader

    Day trading has many advantages and, while we often hear about these perks, it's important to realize that day trading is hard work.
  5. Managing Wealth

    How to Avoid Violating Wash Sale Rules When Realizing Tax Losses

    How to avoid violating the IRS wash sale rules when realizing capital losses in your taxable investment account.
  6. Managing Wealth

    Trader Joe's Stock Doesn’t Exist. Here’s Why

    Learn about Trader Joe's and how it operates. Understand why Trader Joe's has chosen not to be a public company and why it should remain that way.
  7. Managing Wealth

    Understanding the Capital Gains Tax

    A capital gains tax is imposed on the profits realized when an investor or corporation sells an asset for a higher price than its purchase price.
  8. Personal Finance

    8 Steps To An Organized Financial Life

    Disorganization makes planning difficult, and that can cost you big time.
  9. Personal Finance

    Revisiting the Internet Sales Tax Bill: 2013 Vs. 2015

    Learn about the Marketplace Fairness Act of 2015 being reviewed by congress and the differences between it and the 2013 Marketplace Fairness Act.
  10. Managing Wealth

    Capital Losses and Tax

    Capital losses are never fun to incur, but they can reduce your taxable income. Knowing the rules for capital losses can help you maximize your deductions and make better choices about when to ...
RELATED FAQS
  1. What is the difference between income tax and capital gains tax?

  2. Who uses bills of exchange?

    Find out who uses bills of exchange, why they are important in international trade and what happens when a bill is traded ... Read Answer >>
  3. I need special accommodations when taking the Series 63 exam. How are such arrangements ...

    Learn more about special accommodations offered by Series 63 testing sites, and discover how to request special accommodations ... Read Answer >>
  4. How are capital gains calculated when using an online brokerage account?

    Are capital gains calculated annually or on every trade? How can selling a stock at a loss save me money on taxes? Also, ... Read Answer >>
  5. What is the difference between wash trading and insider trading?

    Explore the differences between two trading practices, wash trading and insider trading, and find out why these practices ... Read Answer >>
  6. I want to try short selling, but how can I sell something that I don't own?

    Money can be made in the equities markets without actually owning any shares, but this tactic is not for new investors. The ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center