Investment/pension held in spread bets

[SanMiguel]

I was thinking of holding an investment portfolio in spread bets but was wondering what the effective rate of LIBOR would be. I would mainly be using futures contracts so there would be no overnight charging, just simply the quaterly rollover charge.
I was looking at a simple portfolio of 25% index, 25% bonds, 25% gold, 25% cash for hedging.
The advantage I can see with this is that I do not need to lock up my full investment.
For example, if I have 50k to invest, I could open up a 5k spread bet account using the leverage and invest in those choices.
Does anyone know what the yearly borrowing rate would be? It's about 3% on daily rollover but on futures that doesn't happen. Dividends would be paid from the index and coupons from the bonds so that covers some of it.
That then allows me to have 45k that I can actually use for emergencies and more likely I would keep that 45k in a bank account/certificate that at least paid near to whatever my commissions were on the spread bet account per year.

Any advantages/disadvantages?

 

[jkplay]

I think it's a bad idea. And i'll tell you why...

You don't own anything with a spreadbet position. If I was investing for retirement I would want to actually have something that I can hold, sell and smell... or a piece of paper that says the professionals are managing it for me.

You have to consider:

- The funding charges. These will be too high for long term investing. 18 months is the very most I would consider opening a spreadbet position for.
- The fact that it is leveraged so you will have to top up constantly to keep margin or have a significant amount on deposit which kind of defeats the point of using spreadbetting for leverage.
- The risk that your spreadbetting firm could go bust in the next 20 years or however long you plan on investing.
- The temptation to take on more leverage than you could afford if investing in the physical.

If LIBOR goes up, which it almost certainly will over the next few years, you would be paying alot more to finance your position. If LIBOR is 6% then your shares will need to rise by 8.5/9% a year before you break even.

Hope that helps you weigh up the pro's and con's

 

[jkplay]

Does anyone know what the yearly borrowing rate would be? It's about 3% on daily rollover but on futures that doesn't happen.

Futures already have the cost of maintaining the position for the specified amount of time built into the price.

 

[SanMiguel]

Futures already have the cost of maintaining the position for the specified amount of time built into the price.

Ok, UK cash is now at 5300.
Futures is at 5290.
The difference between the cash and the futures remains at 10 pips for the duration of the contract. So, that doesn't affect you when you open a position - you're just trading £x per point.
September comes and you have to roll over, they charge 50% of the spread to do this. You get rolled onto a contract currently reading 5280 taking account of the dividends and financing but it could just as wlel be an arbitary number because you are immediately back to trading a position of £x per point, no?

I think it's a bad idea. And i'll tell you why...

You don't own anything with a spreadbet position. If I was investing for retirement I would want to actually have something that I can hold, sell and smell... or a piece of paper that says the professionals are managing it for me.

You have to consider:

- The funding charges. These will be too high for long term investing. 18 months is the very most I would consider opening a spreadbet position for.

Depends on the futures costs but yes I understand the point although costs with a traditional broker will be £20 roundtrip but I guess you wouldn't close for many years so each month a rollover onto the futures would cost 3 pips.

- The fact that it is leveraged so you will have to top up constantly to keep margin or have a significant amount on deposit which kind of defeats the point of using spreadbetting for leverage.

Yes, if something bad happens but it wouldn;t be the full amount. Assume worst case a balanced portfolio reduces by 30%. That's 30% of 50k, means the margin would have to be topped up to around 15k probably not even that.

- The risk that your spreadbetting firm could go bust in the next 20 years or however long you plan on investing.

Covered by FSA although interestingly enough I would like to see if that is just cash positions and what would happen on open positions.

- The temptation to take on more leverage than you could afford if investing in the physical.

Yes. For me, the financing cost is the main problem. For pensions, you;re supposed to kepp it below 1% per year.

If LIBOR goes up, which it almost certainly will over the next few years, you would be paying alot more to finance your position. If LIBOR is 6% then your shares will need to rise by 8.5/9% a year before you break even.

Hope that helps you weigh up the pro's and con's

 

[jkplay]

I would call a spreadbetting firm to check it out

 

[arabianights]

Dude, please just see an IFA. This is doomed.

Obvious objection #1: You're not going to get the same return on your reserve cash in anything instant access that you will be paying in financing (whether implied or explicit)

Obvious objection #2: Will require a heck of a lot of effort on your part to manage a passive investment strategy

Obvious objection #3: Tax treatment likely to be a bitch

 

[SanMiguel]

Dude, please just see an IFA. This is doomed.

Obvious objection #1: You're not going to get the same return on your reserve cash in anything instant access that you will be paying in financing (whether implied or explicit)

Obvious objection #2: Will require a heck of a lot of effort on your part to manage a passive investment strategy

Obvious objection #3: Tax treatment likely to be a bitch

Ok, point taken though I suspect my financing in a spread bets (tax free) would just be taken up in commission charges by an IFA! Isn't passive investment just that...passive?
Anyway, thinking about it, it would just be better to invest in a tracker as I have a long time left before I need to take pension money. I can the carry on day trading for other stuff.

Thanks all.

Edit: re financing.
A £1 SB = about £5000 in the real market place on FTSE. Financing charges would be 3 pts per quarter so that's £12 per year. (5000/12 = 0.24% per year)
£5000 in a tracker plus £20 commission = 0.4% but divided by 5 years takes it down to around 0.08% per year or less plus you get 4% dividends on top...oh and the tracker will take at least 0.25-1% per year in charges of their performance.

 

[scose-no-doubt]

25% index - Why not just build up an ETF position in an ISA?
25% gold - safe deposit box
25% bonds - No cap gain on gilts, tax free coupon by building position in a spouse's/child's ISA
25% cash - I recommend sock drawer but a bank will be fine if that floats your boat.

There you go saved you some money