For US based Quants, was curious if any of you have been qualified by the IRS as a Trader in lieu of Investor for tax season - based exclusively on Algo trading? Did you need to register this activity as a business or claim self-employment to accomplish this?

Without getting into the additional complexities of accounting on trades, there are significant tax benefits to being qualified by the IRS as a Trader, which permits additional tax deductions on trading losses beyond the $3000 limit. Traditionally, this qualification applies to day traders manually executing several hundreds/thousands trades per year, and spend a significant amount of time per week trading, often in a self-employed or full time capacity. Everyone else falls into the investor category, which includes everything from buy/hold investors to active swing traders and portfolio managers investing as a side income.

I have full time employment outside of trading, but intend to algo trade with a scalping style that could generate several trades per day that could amount to hundreds/thousands trades per year. I would be designated as a Pattern Day Trader by my brokerage in accordance to FINRA, and my trading algo would be active throughtout the market week all year. It would be likely that I would need to devote 20 hours per week to this activity, mostly in a development capacity rather than manually executing trades myself. Without speculating on trading success, annual profits from this activity would only be a fraction of my primary employment income. If this activity were to exceeed my employment income, then that is a good problem to have!