The big buzz on Wall Street right now is that many U.S. based companies are trying to relocate to other countries. President Obama spoke about this several weeks ago, and now, it looks like some big names are beginning to take action. The major news Monday was that Burger King is buying Tim Horton’s–and part of the deal is that Burger King will be moving its headquarters to Canada in order to avoid many U.S. taxation policies.
It’s not a surprise by any means, but it is one of the first moves made by a major U.S. corporation. And the surprising part of this is that this news made investors extremely happy. Shares of Burger King jumped by almost 20 percent by the end of the trading day. Tim Horton’s stock went up by just over 18 percent, too.
This strategy is known as tax inversion, and it has been a huge trend this year alone. It’s basically when a company relocates its home office to a country with lower taxes, all while retaining business within the original country. In other words, Burger King will still be around in the U.S., it just won’t have to pay as much to the government in order to do what they’ve always done. In the end, it avoids a lot of the double taxation that many American corporations are stuck with.
With many traders, this particular deal was a big surprise and many were unprepared to act until it was too late to make any money off the deal. This is especially true of binary options traders since neither BKW or THI are offered by the typical binary broker. It does illustrate the point, though, that many big companies are thinking of doing this, and that you need to be prepared to act quickly. It is only a matter of time before a stock offered by binary brokers is in a similar situation. And now that we have a clear idea of what happens pricewise to a company that does this over the short term, it becomes really easy to formulate a binary strategy. Stringing together a lot of low risk, short term trades over the course of a day can lead to much more than the 20 percent profits that Burger King saw. Ten trades at 75 percent profit with $100 risked each time would lead to $750 in profits over a day. Investing the same $1,000 into Burger King’s stock would have given you a return of less than $200.
It seems that the tax inversion strategy makes possible a lot of short term growth. Yes, it diverts profits away from the government, but so far, it has only helped companies to grow profits. This is definitely a good thing from a trading point of view. It makes direction easy to determine and much more predictable for the average person. The long term repercussions are still under debate, but for now, this seems like an easy way for big corporations to grow, and for traders to make fast money in the markets.
While legislation is probably in the future for this, there isn’t much now that the U.S. government can do to prevent these movements. And in the end, there’s not much that the U.S. will be able to constitutionally do to prevent a company leaving the U.S. if they really want to. It might put a tiny discomfort to the U.S. economy, but it will not be a major one. The only thing that really looks like it might suffer because of this long term is the U.S. dollar.