Best Thread Capital Spreads

[Jbat001]

Well, if you 'admitted' to being a trader and earnt a subsistence income from a direct access account or dedicated forex account, both of which were taxable, would the additional income still not be taxable if from spreadbetting?

Nope - and that's the beauty of it. Provided you could legitimately argue to HMRC that your FX account was a taxable subsistence income, and you actually paid tax on it, the spreadbetting would be bulletproof.

 

[capitalspreads]

jbat/broadsword

i am sorry to rain on the parade but I am not sure that you are correct. We have always been led to believe that if your main source of income is 'trading' from whatever source then any SB portion should also be classed as taxable.

I may be wrong but it would be advisable to ensure that you are not doing the IR out of any income as they can be quite shirty, I hear. That said, I have never heard of anyone being taxed on SB but then people probably don't advertise the fact.

Simon

 

[Pippppin]

this conundrum seems to run and run.....and nobody can supply the definitive answer.
Probably because there isn't one.

It probably works by postcode - if you live on one side of the street you are liable to tax on spreadbetting profits. If you live on the other side, you are not. That tends to be how most "services" operate in Britain

 

[minx]

It'll be tax free until Gordon decides that the NHS isn't quite wasting enough money yet and takes all your hard earned cash and heaps it onto his bonfire in order to get re-elected.

Now where did I put that property guide for the Cayman Islands

 

[Jbat001]

jbat/broadsword

i am sorry to rain on the parade but I am not sure that you are correct. We have always been led to believe that if your main source of income is 'trading' from whatever source then any SB portion should also be classed as taxable.

I may be wrong but it would be advisable to ensure that you are not doing the IR out of any income as they can be quite shirty, I hear. That said, I have never heard of anyone being taxed on SB but then people probably don't advertise the fact.

Simon

Hmmm, ok. I most certainly want to be corrected if my understanding is flawed, so I'll stand corrected if thats the case. The logical link that they (HMRC) would be trying to make is tenuous, and here's why (all in my humble opionion, of course!):

Imagine you trade options (no spreadbetting) for a living, but you like betting on the dogs on the side. You're quite good at the track, and make £10,000 extra income that year, which the revenue are aware of. They will certainly tax you on the trading, but since there is plenty of precedent for the non-taxation of pure gambling earnings, they wouldn't tax you on the doggy bets (see Burdge vs Pyne [1968] on HMRC's website - BIM22019).

If the basis was changed so that the 'outside activity' was sports spreadbetting, the same would apply, as the two are entirely unrelated, and Burdge vs Pyne still holds, and herein lies the problem. I can't see a qualitative difference between taxing a financial spreadbet if you trade elsewhere on a taxed basis any more than they would tax a stable hand on his bets he made at the races on the side (which doesn't happen).

On this basis, it may well be the case that they could have a go at taxing spreadbets if your main activity is trading-related, but I'm suspicious of the legality of it. I hope you're wrong Simon, but if you're right, I may have to get more creative with the taxman, and I'd most definitely point out this flaw to them!

 

[Pippppin]

does this not revolve around betting tax? The vast majority of "gamblers" (whether at the dogs, or spreadbetting) lose, but cannot offset their losses for tax purposes. The exchequer is, not surprisingly, very happy with this situation, and is happy to allow the small proportion who profit to net their winnings tax free.

If the current situation changed, this would open the floodgates for the vast majority of punters who lose to claim losses against their earnings, which would cost the exchequer far more

 

[Visaria]

One point that no-one has mentioned so far - what would the point of spreadbetting be if the profits were to be taxed?

Anyone who is making sizeable amounts, that is enough for the taxman to take some interest, would presumably be trading in sufficient size to warrant going fully to direct access if they were now to be taxed on their profits. With the tax advantage removed, why would anyone pay more in spreadbet costs when trading through direct access would cost far less?

Leading on from this, would the taxes paid by these traders on the profits from direct access offset the decrease in the amount of tax that the spreadbet firm pays because it no longer has the business of these traders?

 

[The Pear]

fxscalper


We do not pay dividends .. we make a debit/credit to reflect dividend price action.

you must remember that this is a bet, you do not actually own any shares. you may get 90% of the dividend via a cfd but you will then have to pay tax on this whereas with the bet you get 80% flat. If i was you i would ask why you dont get 100% on the cfd as you then have to pay tax on it.

Simon - thanks for getting back but but does getting 80% back mean I am still liable for 20% if I was a higher rate tax payer, any credit being classed as income? A bet is a bet I agree but crediting my account (-20%) indicates tax implications. This should also apply then to short positions - why pay 100% not 80%

 

[Jbat001]

does this not revolve around betting tax? The vast majority of "gamblers" (whether at the dogs, or spreadbetting) lose, but cannot offset their losses for tax purposes. The exchequer is, not surprisingly, very happy with this situation, and is happy to allow the small proportion who profit to net their winnings tax free.

If the current situation changed, this would open the floodgates for the vast majority of punters who lose to claim losses against their earnings, which would cost the exchequer far more

I quite agree! This is another of my objections to paying tax on SB in any form. If they were so damn determined to tax me, I'd be asking to offset my losses!

 

[capitalspreads]

The pear

if we only charged 80% on shorts over ex-div dates, every single client we had would just sell the day before the ex date in the knowledge that they would be able (probably) to buy back the next day with a guaranteed profit. Very nice for our clients but I am quite fond of London Capital Group and do not want to drive it into administration just yet!

jbat/pippin et al

ummm ..... when did taxation ever follow logic.

Visaria

depends what you trade in....spread betting is much cheaper for equities and FX .. maybe a bit more expensive for indices...and depending on whether you can actually get your trade on probably more expensive on commodities. BUT to this must be added the margin requirements ... SB margin requirements are far, far smaller than DA, so if you are a successful trader you will always be able to trade in bigger size using SB which should make up for any cost differentials in spadefuls.

Simon

 

[Visaria]

Visaria

depends what you trade in....spread betting is much cheaper for equities and FX .. maybe a bit more expensive for indices...and depending on whether you can actually get your trade on probably more expensive on commodities. BUT to this must be added the margin requirements ... SB margin requirements are far, far smaller than DA, so if you are a successful trader you will always be able to trade in bigger size using SB which should make up for any cost differentials in spadefuls.

Simon

Without the tax advantages of SB, trading via direct access on indices and commodities is FAR cheaper! If you're a successful trader, the difference in margin requirements between direct access and SB isn't an issue and doesn't make up for the differentials in cost.

 

[fxwinner22]

I'm with you Minx - will the last person out turn off the light please!

 

[capitalspreads]

visaria

nicely ignoring the two markets where it is cheaper to Spread Bet. FX and Equities are by far the largest markets that we quote and therefore the overall saving on Spread Betting can be significant.

On indices and commodities, maybe, but again this depends what market you trade in..... I admit that the dow at 4 pips appears wide but S&P at 4? the underlying is 2.5 before trading costs. The reason that the Wall Street is wider is because of the relative illiquidity. Trying to buy or sell on a price in the CBOT future is very annoying as my dealers can attest to. The FTSE (although it has a nominal 0.5 min spread in the futures) is actually more usually 1 or 1.5 wide in anything more than a few contracts which equates to the 2 pips for SB.

In all this you must also include the saving of trading in your own currency in a foriegn currency product.

Of course SB is slightly wider than direct access but not 'Far Far wider'. In general you will get your deal at your price via SB but I would estimate that our dealers in hedging risk have to 'pay up' quite a significantly high number, percentage wise.

Anyway, I will conceed that for some markets it is ,obviously, cheaper to go the DA route. Although overall the Capital Spreads percentage client winners compares favorably with private clients trading in futures markets which would indicate that the differences are not that great.

Simon

 

[Visaria]

visaria

nicely ignoring the two markets where it is cheaper to Spread Bet. FX and Equities are by far the largest markets that we quote and therefore the overall saving on Spread Betting can be significant.

On indices and commodities, maybe, but again this depends what market you trade in..... I admit that the dow at 4 pips appears wide but S&P at 4? the underlying is 2.5 before trading costs. The reason that the Wall Street is wider is because of the relative illiquidity. Trying to buy or sell on a price in the CBOT future is very annoying as my dealers can attest to. The FTSE (although it has a nominal 0.5 min spread in the futures) is actually more usually 1 or 1.5 wide in anything more than a few contracts which equates to the 2 pips for SB.

In all this you must also include the saving of trading in your own currency in a foriegn currency product.

Of course SB is slightly wider than direct access but not 'Far Far wider'. In general you will get your deal at your price via SB but I would estimate that our dealers in hedging risk have to 'pay up' quite a significantly high number, percentage wise.

Anyway, I will conceed that for some markets it is ,obviously, cheaper to go the DA route. Although overall the Capital Spreads percentage client winners compares favorably with private clients trading in futures markets which would indicate that the differences are not that great.

Simon

Yes, I did ignore the equities and FX simply because I don't trade these. With regard to day trading equities, I would concede that you guys are cheaper simply because the spread is the same as the underlying market but without any commission or stamp duty. Trading in a longer time frame, I would say that CFDs and even trading the underlying shares may be more cost effective. This is more likely the longer the position is to be kept.

With regard to FX, there isn't a universal exchange (apart from currency futures, where direct access is cheaper than SB anyway) to compare with. You just have many firms acting as market makers setting their own prices and spreads. I'm sure that there are firms out there which have lower spreads than CS. Of course, if one can somehow trade on the interbank system where the spreads are often non-existent, then SB is totally beat.

I agree to a point about the underlying liquidity on the FTSE and on the Dow. The reason I say to a point is that the mini contracts in the Dow do offer sufficient liquidity and depth. I can't see why your dealers would have much of a problem hedging large trades in this. (As an aside I'm sure you've said before that you don't hedge due to the costs Please clarify). The Emini S&P, which many pros use, is one of the most liquid contracts in the world with thousands of contracts bid and offered.

With regard to commodities, SB is more expensive than going direct access. Howver I do concede that the underlying markets can become fairly illiquid in out of hours with wide spreads where SBs do more or less retain their spreads and so can be cheaper to deal with.

I certainly do recognise your point about trading in one currency whereas trading the underlying might be in a number of currencies. Definitely a selling point for trading via SBs.

I also want to say that I would rather trade with SBs than direct access. I have traded with both for over a decade now. My points re the costs I believe are valid if the tax advantages were removed.

 

[capitalspreads]

visaria

thanks for your quite indepth comment.

My mention about the dow was just that when we do go to hedge, the market moves so fast that what looks like good liquidity (30, 40, 50 contracts etc) quickly disappears when you consider that there are probably many thousands of traders all logged on and all wanting the same price! With SB,admittedly at 4 pips wide, you will get the trade 99% of the time. We have quite a few clients who trade 100,200 pounds a point which is about 30 or 60 mini dow contracts. As i write (admittedly at 12.40 UK time) to buy this amount of contracts would move the market more that our 4 pip spread.

thanks for the well reasoned discussion which should be at least informative, rather than a destructive, for any newcomers thinking of the SB / DA balance .

Simon

 

[Pippppin]

Visaria made some very good points.

However, the key point in my mind is the time frame of a trade. The longer the time frame, the better value spreadbetting becomes.

Equiites traded on an intra-day daily basis offer very poor value. However, equities traded over a longer time frame such as weeks and months offer much better potential value since the spread is fairly constant, yet weekly and monthly time frames can result in large price movements. I do not know how the cost would compare with CFD's over longer time frames, but of course spreadbetting has the tax free (in theory) advantage

 

[FXSCALPER2]

Regarding FX, these days you can trade at interbank prices with non-dealing desks like MBtrading. Their spreads on EURUSD, USDJPY, GBPUSD, EURJPY, EURGBP and USDCHF are moslty 1, but you can trade within the spreads and the fills are superb. You can get 1-2 pips on USDCAD as well. The commission on pairs with USD the lead currency is $10 per round trip per lot ($10/pip) and about $13 on EUR/XXX and about $18 on GBP/XXX . You, of course, pay tax on the profits.

So, it depends on the pairs you trade. Simon offers 2 pip on USDJPY and EURUSD, for example. On the face of it, therefore, you won't do better trading interbank that with CS on the two majors. For GBPUSD, you are paying about 2.8 pip in spreads trading with MBtrading, whereas Simon offers 3. However, you can sometimes get excellent spreads on pairs like GBPJPY, AUDJPY and USDCAD trading direct. You also get 1 pip on USDCHF with MB trading most of the time.

Now, if cost was the only consideration, I will trade the majors with Simon's outfit and forget about the rest because the tax free incentive plus the tight spreads will make it the thing to do. But (a big BUT), the excution and the feed on CS can be really terrible. If you want to go in and out with 10 pips, then it is much better to trade direct. If you are looking for 30 pips or more, it clearly makes no sense to pay the same amount in costs and then pay tax on the profits.

Having said that, I find it psychologically easier to trade direct because feeds with CS are a bit wanting. If they sort that out, the direct access guys will have to reduce their commission drastically to compete.

 

[gc1]

Which reopens the question when are the automatic fills (mentioned in June) coming ?

 

[Visaria]

Regarding FX, these days you can trade at interbank prices with non-dealing desks like MBtrading. Their spreads on EURUSD, USDJPY, GBPUSD, EURJPY, EURGBP and USDCHF are moslty 1, but you can trade within the spreads and the fills are superb. You can get 1-2 pips on USDCAD as well. The commission on pairs with USD the lead currency is $10 per round trip per lot ($10/pip) and about $13 on EUR/XXX and about $18 on GBP/XXX . You, of course, pay tax on the profits.

So, it depends on the pairs you trade. Simon offers 2 pip on USDJPY and EURUSD, for example. On the face of it, therefore, you won't do better trading interbank that with CS on the two majors. For GBPUSD, you are paying about 2.8 pip in spreads trading with MBtrading, whereas Simon offers 3. However, you can sometimes get excellent spreads on pairs like GBPJPY, AUDJPY and USDCAD trading direct. You also get 1 pip on USDCHF with MB trading most of the time.

Now, if cost was the only consideration, I will trade the majors with Simon's outfit and forget about the rest because the tax free incentive plus the tight spreads will make it the thing to do. But (a big BUT), the excution and the feed on CS can be really terrible. If you want to go in and out with 10 pips, then it is much better to trade direct. If you are looking for 30 pips or more, it clearly makes no sense to pay the same amount in costs and then pay tax on the profits.

Having said that, I find it psychologically easier to trade direct because feeds with CS are a bit wanting. If they sort that out, the direct access guys will have to reduce their commission drastically to compete.

Yes, another reason is speed of execution. Note that my previous posts were assuming a successful trader was now being taxed by HMRC: would he stay with a SB or move to direct access?

 

[FXSCALPER2]

Yes, another reason is speed of execution. Note that my previous posts were assuming a successful trader was now being taxed by HMRC: would he stay with a SB or move to direct access?

Oh, if one is taxed, of course it makes little sense to spread bet.