Spread Betting

[Iron]

Sorry, I'd assumed that zero spreads was the name of the company! D'oh!

So how can you spread bet without a spread?

Jeff

[andyfuller]

Surely just the same as you would with say a 5pt spread? You buy or sell then close out and either take your profit, loss or scratch.

Never done any spread betting so can't say I am overly qualified to comment. But I would guess say X is priced at 205 but is 200 to sell and 210 to Buy with Capital Spreads, with World Spreads and their Zero Spread it would be 210 to Buy and 210 to Sell.

[Iron]

I thought that the spread betting company made their money from their ability to buy and sell closer to the spread in the market itself, and that was why you didn't pay any commision or fixed fee.

Let's use a Betfair analogy. You think that the market is about to start steaming, and back at the available price of 2.68 (and Betfair themselves lay your back). And let's say that Betfair have a secret deal with a high roller where they can sell bets and lays to him between the increments available to everyone else. The high roller thinks that the price is about to drift, and wants to lay ASAP. He's able to lay at 2.69, rather than the 2.7 that's available to everyone else. So Betfair would profit by laying your back at 2.68 and backing his lay at 2.69.

The above is purely hypothetical, but it wouldn't surprise me if it goes on!

Jeff

[superfrank]

That's exactly it Andy.

The problem I have with it is that you have to trade from a crappy order entry screen rather than a ladder.

See the screens here http://www.worldspreads.com/en/ppc/deal ... de/en.aspx.

When I've used WorldSpreads I've done so using my futures trading software for all the charts etc. then just have a small browser window with WorldSpreads in it to place the trades.

[andyfuller]

They say they make the money off customers who use the Zero Spread when they trade other markets that aren't zero spread.

My guess would be that if you solely traded using the Zero Spread markets they would have a word in your ear?

[Iron]

Let's say your a consistently successful financials trader.

If zero spread don't have any better access to the markets than you do, and don't charge you commission or any other fee, then surely it wouldn't be too long before they shut you down (for the same reason a bookie would).

Jeff

[superfrank]

Maybe they wouldn't want your business if you only traded zero spreads and made loads but you could disguise things a bit by placing some large trades in non-zero spread markets over longer time frames and hedge those positions using another spread firm (you would take a small hit on the spread but with a bit of luck most of the losing trades would be with WorldSpreads and then they wouldn't give a damn!).

Spread betting companies don't mind winners on the whole - they hedge using futures when they are exposed significantly on one side.

I use futures because the transaction costs are lower - but the zero spreads thing is obviously attractive because there are no costs at all.

[andyfuller]

Would there not be a charge if you rolled the position over from one day to the next?

When trading futures if you do it to scale would you not have to pay capital gains, which you don't on spreads?

[andyfuller]

Jeff - what was your experience of spread betting? Do you still do it or have you stopped? Any particular reason for stopping if you have?

[Iron]

To cut a long story short, I lost money, which is why I quit.

However, I'd like to think things would be different if I were to try again. I know things now that I didn't know then (and more importantly, I now know things aren't the case that I thought were true back then!). But for now my focus is on Betfair.

If you do pursue spread betting using a non-ladder platform, I'd recommend this book: http://www.amazon.co.uk/Trading-Chaos-T ... 0471463086

Jeff

[superfrank]

Would there not be a charge if you rolled the position over from one day to the next?

When trading futures if you do it to scale would you not have to pay capital gains, which you don't on spreads?

You wouldn't trade daily markets for that you would trade the longer term ones (with months to expiry - tied to futures contracts normally).

I'm not sure of the tax position on any trading tbh. I throw any correspondence from HMRC in the bin unopened atm! It's something I have to look into though.

[Iron]

The general consensus when you research the matter online is that spread betting is tax exempt as it's a form of gambling. I don't know if that's the official view of HMRC, however!

Jeff

I'm not sure of the tax position on any trading tbh. I throw any correspondence from HMRC in the bin unopened atm! It's something I have to look into though.

[andyfuller]

From the all knowing (supposedly) Wikipedia:

In the UK and some other European countries the profit from spread betting is free from tax.

The UK and some other European countries tax authorities designate financial spread betting as gambling and not investing, meaning it is free from capital gains tax and stamp tax, despite the fact that its regulated as a financial product by the Financial Services Authority in the UK.

Most traders are also not liable for Income Tax unless they rely solely on their profits from financial spread betting to support themselves. The popularity of financial spread betting in the UK and some other European countries, compared to trading other speculative financial instruments such as CFDs and futures is partly due to this tax advantage. However, this also means any losses cannot be offset against future earnings for tax calculations.

[andyfuller]

I'm not sure of the tax position on any trading tbh. I throw any correspondence from HMRC in the bin unopened atm! It's something I have to look into though.

I am fairly sure you would be liable for Capital Gains on all other trading unless you do it inside a stocks and shares ISA. However, as with Income Tax you get a Capital Gains Tax allowance, currently £10,100 rising to £10,600 next tax year I believe. Capitals Gains Tax is currently either 18% or 28% depending on your taxable income.

I wouldn't go throwing away HMRC stuff, they are one set of people you don't want to get on the wrong side of and most of all I wouldn't be throwing away letters as they have recently been sending out cheques to people who are owed a rebate due to a cock up (though some people are being asked to pay more tax )

[andyfuller]

What am I missing with this:

Say we decided this morning before the markets opened to go short on the FTSE. So we could either do it on the futures market (correct?) or we could do it Spread Betting.

A) We are a FT Spread Bettor and we are playing at £100 a point.

The FTSE is currently down 220.5 points on the day from an opening of 5544 at 5323.5

The Spread was 1 point so was 5543.5 to Sell and 5544.5 to Buy

So as we sold at 5543.5 for £100 a point we have made 220 points or £22,000

There would be nothing to pay out of our winnings as Spread Betting is free of Capital Gains and Stamp Duty so we would Net £22,000. Correct?



B) We do the above trade on the Futures for the same amount of money. Again we make £22,000 but we would now be liable for Capital Gains Tax of 18% (assuming we have used up the allowance for the year) but not Stamp Duty as we bought a contract rather than actual shares?

So £22,000 -18% = £18,040

So you would have been £3,960 better off doing the above trade on Spread Betting v Futures.

I know I am missing stuff and not understanding it correctly as surely there can't be the above difference or everyone would just do Spread Betting.

So what am I missing/not understanding?