About to start SB but HELP needed first

[happyhappyhappy]

Hi, I was looking at CFD's and posted some questions on that board but through reading loads have become interested in spread betting. I may do one or the other as yet but I am doing the research at this point. I have dealt in stocks since 1992 and much more actively in the last few years.

I understand the SB to a point, but wonder if someone could answer some questions for me. I am tempted to use CMC as my broker for SB. They charge no commission so is financing the only costs you pay on top of the stock purchase?

I understand about not putting your stop too close, but being silly how close would they let you put it (just want to know the limitations)?

Does anybody know, do CMC let you put in guaranteed stops, and if so how much does it cost to do that as a rough guide?

Can you move the stop if your stock is moving in the right direction to keep tightening on your possible loss, if there is a turn suddenly?

They give an example of a 5% margin, what margin do you find you would normally get on average as a rough guide?

All inputs greatly appreciated.

 

[Jack o'Clubs]

Hi HHH,

I use CMC and like their interface. Also IG as they have a wider range of stocks if you want to dip outside the FTSE350.

To answer your questions:

They charge no commission so is financing the only costs you pay on top of the stock purchase?

Yes - be aware the financing isn't particularly cheap, 300 basis points above LIBOR for CMC. Of course their spread may not correspond exactly to the stock's bid/offer - although CMC are usually very close.

I understand about not putting your stop too close, but being silly how close would they let you put it (just want to know the limitations)?

You can put the stop where you like - if you get stopped out straight away, they will still have made money on the spread.

Does anybody know, do CMC let you put in guaranteed stops, and if so how much does it cost to do that as a rough guide?

Yes, they call it a Controlled Risk Bet - they charge a premium for it, I think by adding a bit to the spread.

Can you move the stop if your stock is moving in the right direction to keep tightening on your possible loss, if there is a turn suddenly?

Not sure. I'd be surprised if you couldn't.

They give an example of a 5% margin, what margin do you find you would normally get on average as a rough guide?

They seem to run with lower margins than most of their competitors, 5% is typical in my experience. To be honest, I find this a bit of a mixed blessing because of the financing charges - I'd rather put more up front than less.

I trade stocks mostly, and its very rare that the all-in cost from a spreadbetting firm (or CFD) beats owning the stock itself, unless you are day trading - the financing costs are relatively punitive, even bearing in mind the opportunity cost of shelling out for the stock itself (my holding period is generally a few weeks to a couple of months).

The tax savings are useful though, so I usually gravitate towards S/Bs during the course of the year as my CGT limits get used up.

 

[happyhappyhappy]

Cheers Jack o'Clubs, thank you very much for your thorough answer but I am not sure what you are saying here

Yes - be aware the financing isn't particularly cheap, I think 300 basis points above LIBOR for CMC.

can you give me a example to clarify it better for my poor brain please, what will 300 basis points above LIBOR mean to me roughly?

 

[Jack o'Clubs]

At the moment LIBOR is about 4.5%, so you're talking about 7.5% interest - so you can see this daily financing charge for holdings of more than a couple of weeks starts to offset the obvious advantages of no commissions or stamp duty. Tax-free still very useful though.

 

[the blades]

At the moment LIBOR is about 4.5%, so you're talking about 7.5% interest - so you can see this daily financing charge for holdings of more than a couple of weeks starts to offset the obvious advantages of no commissions or stamp duty. Tax-free still very useful though.

hello there,

This is the finance factored into rolling bets, where CMC are more expensive than IG, Fins and CS.

However, if you take the quarterly bets,as I do, the finance charge is nearer to the 4.5% LIBOR (less than 5%), and better than I get offsetting the mortgage. This is reduced if any dividends are due within the period. I've found that CMC's finance charge seems a bit better than the others (though I hardly use CS for stocks).

To answer another point, their spreads are in line with the market, and sometimes tighter, for the more liquid FTSE350 stocks. For less liquid stocks, you're better with Finspreads who offer a fixed increase to the market spread of about 0.7%. Outside the 350, use IG 9also, fixed, slightly more expensive, but a wider market down to £20M market Cap).

I have a growing list of trades where I've broken down the spreads / finance charges. I stopped doing this for a long period but started again recently and will post up the results shortly.

Cheers,
UTB

 

[breadman]

Blades,

Would I be correct if I said if I went long the FTSE 100 on the 1st of Jan 2005 and closed the trade on the 31 Dec 2005 and the FTSE 100 went up 15 %. I would actually be up 15% + 3% dividends ( I believe you only get 90% of dividends) = 18% - SB financing LIBOR (4.5% +3% =7.5%. That means I am up 9.5% for the year.

Thanks,
Breadman

 

[the blades]

Blades,

Would I be correct if I said if I went long the FTSE 100 on the 1st of Jan 2005 and closed the trade on the 31 Dec 2005 and the FTSE 100 went up 15 %. I would actually be up 15% + 3% dividends ( I believe you only get 90% of dividends) = 18% - SB financing LIBOR (4.5% +3% =7.5%. That means I am up 9.5% for the year.

Thanks,
Breadman

Hello Breadman,

Hmmmm.....not quite. For a start, if you're betting on the index, you're linked to the futures price, which is a function of interest rates, dividends due and supply and demand (not my area!).

But for stocks, you take quartely bets.

So if you took a bet on a share with a vbalue of £1 (let's forget spread for this point), a quarter in advance. You'd pay £1.0125 to cover that quarters interest. (if a divi was due, you might pay less, sometimes even a discount to the market price). If the stock doesn't move, the SB price would gradually fall over the quarter to £1 at the end of the quarter. If you're long, you've paid the interest, and gained if short.

Take no notice about the BS re bias - if they're doing it thjey don't do it to me

The Libor +3% only applies to rolling bets, not quarterlies (5% ish). If you're holding more than a few days, use quarterlies.

UTB

 

[happyhappyhappy]

Hi the blades, you mention CMC, Finspreads, IG and CS in your post. I have have looked at the posting about the best SB and CMC seems to come out much better. I am a beginner when it comes to SB, and find that a lot of my stock picks don't appear to be in the FTSE350. Are you saying CMC don't do stocks outside the FTSE350 or just that one of the others would be better? Basically as a beginner and wanting stocks outside the 350 who would you suggest I use and maybe their site might be easier to use?

I would like to be able to deal on the internet rather than over the phone and apply stops without phoning. Looking at the "Best SB" posting everyone seems to love CMC, what do you think?

Will anything change outside the 350, i.e. margins, spreads etc?

Another question which may make you think what an amature I am, but how can you find what indices a stock belongs too, i.e. is it in the FTSE100 or 250, or what is it in if it is not in either of these? I have used a site for share dealing for years and have looked but have never seen any indication for what indices each stock belongs to. If I want to know I try to find tables on the Internet. Or is there a better way?

 

[the blades]

Hi the blades, you mention CMC, Finspreads, IG and CS in your post. I have have looked at the posting about the best SB and CMC seems to come out much better. I am a beginner when it comes to SB, and find that a lot of my stock picks don't appear to be in the FTSE350. Are you saying CMC don't do stocks outside the FTSE350 or just that one of the others would be better? Basically as a beginner and wanting stocks outside the 350 who would you suggest I use and maybe their site might be easier to use?

I would like to be able to deal on the internet rather than over the phone and apply stops without phoning. Looking at the "Best SB" posting everyone seems to love CMC, what do you think?

Will anything change outside the 350, i.e. margins, spreads etc?

Another question which may make you think what an amature I am, but how can you find what indices a stock belongs too, i.e. is it in the FTSE100 or 250, or what is it in if it is not in either of these? I have used a site for share dealing for years and have looked but have never seen any indication for what indices each stock belongs to. If I want to know I try to find tables on the Internet. Or is there a better way?

Hello there HHH,

I'm delighted with CMC, but only for large liquid stocks. I, like you, trade outside the 350 and they don't offer this. Of the 4 I use, only IG does. They offer a fixed % spread (about 1.2% for non 350's, about 0.8% for 350's), on top of the market spread which as you'll be aware can be much wider. Only any good if you're a position trader which I suspect you are.

CMC just quote, you can't be sure what spread you'll get. It depends on their orderbook as I believe they're acting as a market maker. You could calculate the quotes from the others yourself, if you know the market price at the time.

For ease of use on the site, go for IG IMHO.

For the relative index, I use Sharescope. I'll happily send you a table, but this'd be just point in time, obviously. I don't know where else you'll find the info, but no doubt others on here will.

Cheers,
UTB

 

[happyhappyhappy]

So, I don't mean to labour on the point too long, are we saying that, if I want online dealing with the ability to go outside the FTSE350, it has to be IG and suffer the spread they add?

OR

Is there anyone else who offers a tighter spread and goes outside the 350, or am I splitting hairs here?

I realise this may be a silly question because they make profits this way, but is there anybody who does not add anything to the existing spread and allows you to deal outside the FTSE350 (Surely they make some profits on the other parts of the deal anyway)?

 

[spreadrisk]

hhh

"Another question which may make you think what an amature I am, but how can you find what indices a stock belongs too, i.e. is it in the FTSE100 or 250, or what is it in if it is not in either of these? "

Check at the FTSE site...

http://www.ftse.co.uk/Indices/UK_Indices/Constituents.jsp

 

[happyhappyhappy]

Hi spreadrisk, happy to see you again and as helpful as ever. Thanks I have just checked and it should do me nicely.

Are you able to answer any of my other questions I posted above?

 

[the blades]

So, I don't mean to labour on the point too long, are we saying that, if I want online dealing with the ability to go outside the FTSE350, it has to be IG and suffer the spread they add?

OR

Is there anyone else who offers a tighter spread and goes outside the 350, or am I splitting hairs here?

I realise this may be a silly question because they make profits this way, but is there anybody who does not add anything to the existing spread and allows you to deal outside the FTSE350 (Surely they make some profits on the other parts of the deal anyway)?

I don't think there is. Man financial also do very small companies but I don't know about their spread - worth a look.

Goes without saying that you save the 0.5% stamp duty, and that gains are tax free which is the main driver for me.

Cheers,
UTB

 

[Jack o'Clubs]

So, I don't mean to labour on the point too long, are we saying that, if I want online dealing with the ability to go outside the FTSE350, it has to be IG and suffer the spread they add?

OR

Is there anyone else who offers a tighter spread and goes outside the 350, or am I splitting hairs here?

I realise this may be a silly question because they make profits this way, but is there anybody who does not add anything to the existing spread and allows you to deal outside the FTSE350 (Surely they make some profits on the other parts of the deal anyway)?

HHH,

It's all a function of the stock liquidity. The s/b firm will generally (although not always) offset the risk of your bet winning by trading the underlying security. Obviously his costs of doing that for a FTSE100 stock are pretty low, and in any case there is likely to be some natural hedging because various clients will have gone long or short of the same stock. But if you choose to buy £10k's worth of exposure to a small-cap, the s/b firm is going to incur higher costs if he hedges it because of limited liquidity, small NMS, etc and hence that cost is passed on to you. When I noted in my original reply that for my trading style s/b's are rarely more cost effective than owning the equity, that's partly because I rarely trade FTSE350 stocks.

I've not discovered anyone outside IG who quote for these littl'uns - if there is I'd like to hear too!

 

[happyhappyhappy]

I have checked through my current stocks and previously owned stocks and found that most of my trading is outside the FTSE350, so being able to trade stocks outside the FTSE350 in SB would be very important to me. Before it never mattered whether they were in the 350 or not but with SB it is obviously going to make it more difficult for me. I am being told that finspread do have a list of stocks, outside of the 350 so does anybody know will this be all the rest or is it incomplete.

 

[Jack o'Clubs]

I have checked through my current stocks and previously owned stocks and found that most of my trading is outside the FTSE350, so being able to trade stocks outside the FTSE350 in SB would be very important to me. Before it never mattered whether they were in the 350 or not but with SB it is obviously going to make it more difficult for me. I am being told that finspread do have a list of stocks, outside of the 350 so does anybody know will this be all the rest or is it incomplete.

It's incomplete. See here: http://www.finspreads.com/downloads/SharesandRICs.pdf

I think you'll find IG are the nearest thing to a complete list, although I've sometimes wanted ot buy stocks they don't provide, and whether their quoted speads / prices are competitive with owning the stock is another question. I'm now at the stage of the tax year where I'll let IG hit me on the spread, to save the CGT liability.

 

[the blades]

I have checked through my current stocks and previously owned stocks and found that most of my trading is outside the FTSE350, so being able to trade stocks outside the FTSE350 in SB would be very important to me. Before it never mattered whether they were in the 350 or not but with SB it is obviously going to make it more difficult for me. I am being told that finspread do have a list of stocks, outside of the 350 so does anybody know will this be all the rest or is it incomplete.

Hello again,

I take it you're a position trader then? If so, does the 0.5% extra you pay over stampy duty matter that much? Surely it's more than offset my the lack of brokerage fees?

Reasons for spread betting (IMHO);

Tax free gains - but only matter if you exceed your CGT allowance
Credit - you may want to trade with money you don't have
Comission - the extra spread is less than broker fee's for "smaller" holdings.

If non of the above apply, why not just deal direct?

Cheers,
UTB

 

[happyhappyhappy]

Hello again,

I take it you're a position trader then? If so, does the 0.5% extra you pay over stamp duty matter that much? Surely it's more than offset my the lack of brokerage fees?

Reasons for spread betting (IMHO);

Tax free gains - but only matter if you exceed your CGT allowance
Credit - you may want to trade with money you don't have
Commission - the extra spread is less than broker fee's for "smaller" holdings.

If non of the above apply, why not just deal direct?

Cheers,
UTB

Hi the blades, yes you are right, I am a position trader and I understand your point. My main reason for looking at SB is

Credit - you may want to trade with money you don't have

. I trade already and do quite well but do not yet have enough invested to make enough to live on, so as I have now decided that I would like to make a go of living off this, I want the advantage that SB gives like you get from CFD's which I have looked at too but am fancying SB as my first port of call to see how I do. If I had enough to invest to create an income, then yes, I would deal direct. I think if I were to have another year like this one I could manage it, dealing direct, but I cannot guarantee that so I need a boost, hence the interest in SB.

 

[the blades]

Hi the blades, yes you are right, I am a position trader and I understand your point. My main reason for looking at SB is . I trade already and do quite well but do not yet have enough invested to make enough to live on, so as I have now decided that I would like to make a go of living off this, I want the advantage that SB gives like you get from CFD's which I have looked at too but am fancying SB as my first port of call to see how I do. If I had enough to invest to create an income, then yes, I would deal direct. I think if I were to have another year like this one I could manage it, dealing direct, but I cannot guarantee that so I need a boost, hence the interest in SB.

..at the risk of starting another one of those debates, you may find that spreadbetting isn't just your first port of call. I know for a fact that because of the way I trade, spreadbetting is the cheapest method, bar none, for me.

Good luck,
UTB

PS - if you'd like to talk anything through, PM me and I'll leave you a contact number (I'm married with kids, so you're safe, honest )

 

[happyhappyhappy]

Cheers the blades, thats very nice of you and I may take you up on that yet. I am studying a bit more first so that I have a bit more knowledge before I talk to someone clever like you, so that I have some chance of understanding what you tell me. On the surface it does not look too bad to deal with SB but there are some parts which I am still struggling to understand, like the calculation that shows you what you need to have in your account to hold the trade for any length of time, so that they don't close it on your behalf should you not top your account up quick enough, and it travels in the wrong direction.

One thing I did not mention in the previous post, which is a reason I am interested in SB, is the ability to go short. It is fine going long whilst we are in the bull market but I always struggle when it changes to a bear market and I cannot find anything decent to go long on. I don't know if other brokers let you go short on direct dealing but I don't think Barclays do,which is who I ended up with. The ability to go short, seems a big advantage to me, it seems like it would double my options for dealing.