Reducing financing costs for long positions typically lasting from a month to a year

[cassiopeia]

Finance costs for spread betting or CFDs are typically SONIA+/- 3%, that is around 8% for Long positions. Since few brokers reduce the amount borrowed by the margin deposited, interest is lost on that as well. Hence, in a high inflation economy making a real profit relative to inflation whilst trading on margin is particularly difficult.

Of course the answer is to simply cough up the full amount and buy the shares, but then other costs creep in; stamp duty for UK shares or exchange fees for foreign shares.

Is it possible to use a dollar dominated (Ideally ISA) account to buy and sell shares and avoid these costs?

 

[BigDeal]

Generally, leveraged instruments are only any good as a short term approach, although you could consider futures / forwards becasue these don't incur overnight funding.

You are not able to hold non sterling cash in an ISA

 

[cassiopeia]

Even with shorter-term positions, for the same overall exposure held overnight the cost is the same. I suppose day traders can escape this.

It's easy to overlook these costs. It wouldn't surprise me to find the markup is where most companies who offer spread bets & CFDs make much of their profits, and ultimately where many traders find they lose in the long run (at least relative to inflation), because the cost of carry and inflation is far less obvious than the spread.

Yes, I've considered futures or forward contracts, although the cost of carry is built into the price to some extent and the spread is wider for longer contracts.

 

[BigDeal]

It wouldn't surprise me to find the markup is where most companies who offer spread bets & CFDs make much of their profits,

Absolutely, I researched this a while back. Overnight interest charges are more profitable than the spreads for leveraged brokers.


Don't forget that there is a potentially small benefit if you hold short positions because you can get paid overnight for positions you are holding. The calculation is something like SONIA - 2.5% for most brokers it seems, and so with SONIA around 5% now? you should receive a credit equal to 2.5%

 

[cassiopeia]

Don't forget that there is a potentially small benefit if you hold short positions because you can get paid overnight for positions you are holding. The calculation is something like SONIA - 2.5% for most brokers it seems, and so with SONIA around 5% now? you should receive a credit equal to 2.5%

That's why I'm only using short positions on margin and using UK shares for long positions. However, I think the markup was much less ~20y ago.