donaldduke
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depends, 2 trades a week then no, 20 a week then getting close.
100 trades a week, then much more.
depends, 2 trades a week then no, 20 a week then getting close.
100 trades a week, then much more.
N Rothschild
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yeh that comment is mainly directed at the spread betting day traders, which lets face it most of them are! swing trading probably less yeh
SH-101
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For day traders maybe, but I swing "trade" FX using a spreadbetting firm, and I'd rather pay an extra pip or two of spread on a 100+ pip trade than give 40% of my earnings away!
edit: last 2 posts above appeared while I was writing the above so never mind!
Hopefully the HMRC knows they make more money taxing spread betting companies profits than they would taxing spread bettors directly especially as research shows that 85% of people lose!
N Rothschild
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For day traders maybe, but I swing "trade" FX using a spreadbetting firm, and I'd rather pay an extra pip or two of spread on a 100+ pip trade than give 40% of my earnings away!
edit: last 2 posts above appeared while I was writing the above so never mind!
why would you be paying 40%? you pay CGT on speculative profits. 18%. and remember you pay the spread on your losers and your winners. your only taxed on your winners
SH-101
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To be fair you may well be right - I know sod all about tax really and how it applies, I was just reciting what boring accountant friends tell me I'd be paying. I've only ever had one job apart from spreadbetting and that was years ago so it's never really come up!
N Rothschild
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that's the thing, if most people bothered to do a bit of due diligence they would realize they are probably worse off spread betting and having none of the advantages of DMA. imo just goes to show the average intelligence of spread betters! no offense
SH-101
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that's the thing, if most people bothered to do a bit of due diligence they would realize they are probably worse off spread betting and having none of the advantages of DMA. imo just goes to show the average intelligence of spread betters! no offense
None taken - I do agree for the most part about day trading with SB firms (although I do know a couple of people that do it, they're exceptional cases though). For me at the moment though, as a swing trader, the tax advantages of SBing outweigh the prospect of gaining an extra 0.1-0.2% per winning trade through DMA.
Vaco
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All good posts and the decision about which way to go (dma or spreadbet) is what i'd like this thread to tackle next.
Rather then the two camps shouting their way is cheaper from across the fence i'd like to see if we can come up with some kind of formula that members can apply to their trading results to decide which route offered the best cost saving.
Of course we would have to make some assumptions.
1.trading is the only source of income
if that is the case how would it be taxed, CGT at 18% or would you have to set up a company and pay 30% to avoid falling into the income tax bracket.
2.that apart from the difference in the spread all other factors would be the same.
anyone got any ideas as to how we do this?
Rather then the two camps shouting their way is cheaper from across the fence i'd like to see if we can come up with some kind of formula that members can apply to their trading results to decide which route offered the best cost saving.
Of course we would have to make some assumptions.
1.trading is the only source of income
if that is the case how would it be taxed, CGT at 18% or would you have to set up a company and pay 30% to avoid falling into the income tax bracket.
2.that apart from the difference in the spread all other factors would be the same.
anyone got any ideas as to how we do this?
Jack o'Clubs
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Just look at it as a total cost per trade. It will vary by individual for instrument traded and typical gain, but it's just spreadbet spread minus market spread (in financial terms) versus DMA commission plus expectancy x 18%. Leverage costs may be relevant for those holding overnight as spreadbet interest charges tend to be relatively expensive.
The other difficulty though is comparing quality of fills on entries, exits and stops. If some of the spreadbet threads are to be believed there are some pretty sharp practices going on that cost spreadbetters money, but how do you quantify that?
Remember also that the first £10k (in round numbers) are 'tax free' under DMA as they will be inside your annual allowance. I wonder how many spreadbetters attracted by 'tax free' actually make more than £10k pa.
How ‘bout an example:
Let’s say I trade FTSE futures / spreadbet. Comms on the futures are £3.40 R/T per contract and effectively £5 for the spreadbet (ie 1pt spread which is 0.5pt spread over the market).
I expect to place 800 trades a year (averaging 4 trades a day over 200 trading days) and trade 1 contract a time (or £10/point). I have a 70% success rate with, on average, a 10 point target and 5 point stop loss.
Spreadbetting my profits are (70%*100+30%*-50)*800-(5*800) = 40,000.
DMA my profits are (70%*100+30%*-50)*800-(3.4*800) = 41,280. Less 18% tax after my annual allowance = £35,668 In this example I would be better off spreadbetting, BUT not by a huge amount and this is all highly dependent on my ability to get the same fills as I would on DMA entries, exits and stops. Obviously you can change the parameters to change the outcome - eg if you were betting the FTSE with a two point spread the s/b profits would reduce to £32,000 and you'd be better off DMA even with tax.
The other difficulty though is comparing quality of fills on entries, exits and stops. If some of the spreadbet threads are to be believed there are some pretty sharp practices going on that cost spreadbetters money, but how do you quantify that?
Remember also that the first £10k (in round numbers) are 'tax free' under DMA as they will be inside your annual allowance. I wonder how many spreadbetters attracted by 'tax free' actually make more than £10k pa.
How ‘bout an example:
Let’s say I trade FTSE futures / spreadbet. Comms on the futures are £3.40 R/T per contract and effectively £5 for the spreadbet (ie 1pt spread which is 0.5pt spread over the market).
I expect to place 800 trades a year (averaging 4 trades a day over 200 trading days) and trade 1 contract a time (or £10/point). I have a 70% success rate with, on average, a 10 point target and 5 point stop loss.
Spreadbetting my profits are (70%*100+30%*-50)*800-(5*800) = 40,000.
DMA my profits are (70%*100+30%*-50)*800-(3.4*800) = 41,280. Less 18% tax after my annual allowance = £35,668 In this example I would be better off spreadbetting, BUT not by a huge amount and this is all highly dependent on my ability to get the same fills as I would on DMA entries, exits and stops. Obviously you can change the parameters to change the outcome - eg if you were betting the FTSE with a two point spread the s/b profits would reduce to £32,000 and you'd be better off DMA even with tax.
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montmorencyt2w
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@Jack: Yes, but you've then got to keep accurate records on 800 transactions, file a tax-return and possibly employ an accountant.
Even if your profits are less than £10k a year, you still have to do these things (maybe not hire the accountant).
It is the relative simplicity of spread-betting that is one of the attractions.
I would like to hear from someone who has regularly spread-bet for a number of years, made a consistent profit of well over the CGT threshhold, and then gone DMA and let them recount their experiences and how they think it compares.
In particular, I'd like to hear if they had any difficulty in making sure that HMRC taxed their trading profit as speculative profit, i.e. CGT, or as income, i.e. income tax. I seem to remember reading or hearing that this was by no means always a straightforward matter.
Even if your profits are less than £10k a year, you still have to do these things (maybe not hire the accountant).
It is the relative simplicity of spread-betting that is one of the attractions.
I would like to hear from someone who has regularly spread-bet for a number of years, made a consistent profit of well over the CGT threshhold, and then gone DMA and let them recount their experiences and how they think it compares.
In particular, I'd like to hear if they had any difficulty in making sure that HMRC taxed their trading profit as speculative profit, i.e. CGT, or as income, i.e. income tax. I seem to remember reading or hearing that this was by no means always a straightforward matter.
Spreadbetting and tax has allways been a 'grey' area so I did speak to an accountant who is still researching the area but did inform me that there is a spreadbetting return form.
General Betting Duty Spread Betting Return - form BD211A.
The form can be downloaded from HMRC website. I was not aware of this form and am still strying to work out what it all means.
If anyone has filled one out before your advice would be most helpful.
Thanks
General Betting Duty Spread Betting Return - form BD211A.
The form can be downloaded from HMRC website. I was not aware of this form and am still strying to work out what it all means.
If anyone has filled one out before your advice would be most helpful.
Thanks
Hoggums
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The SB return form you mention is for SB brokers to fill out - i.e. you have been taking spreadbets from punters. This is not for any member of the public. So unless you are paying winnings to your clients this is not for you.
capitalspreads
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it would be more instructive if someone actually stood there doing a £10 spread bet in the FTSE versus a 1 contract in the Futures. making the same trades at exactly the same time.
And did it for a whole month
The fact is that, whilst the minimum spread on the futures is indeed 0.5 points, ...these days it is often not there. in fact it is quite freqently wider than 1 point! not only this but playing in £10 a point you would probably be filled 100% of the time with an SB company but on DMA you might miss the trade quite frequently as the liquidity would just be taken by another person picking the offer off before you.... Plus comms .... Plus far (far) bigger capital employed etc..
and one of the big advantages of SB is that you can vary your stake size. Dax contracts are huge (€25 a point) the vast majority of clients trade in smaller size than this. The average stake size on the FTSE and Dax with CS is around £5
Anyway after a month (trading in actual contract sizes) I would really be quite surprised if the difference between the two made up more than a plate of beans.
It would be interesting if an independant reader made this attempt.
Simon
And did it for a whole month
The fact is that, whilst the minimum spread on the futures is indeed 0.5 points, ...these days it is often not there. in fact it is quite freqently wider than 1 point! not only this but playing in £10 a point you would probably be filled 100% of the time with an SB company but on DMA you might miss the trade quite frequently as the liquidity would just be taken by another person picking the offer off before you.... Plus comms .... Plus far (far) bigger capital employed etc..
and one of the big advantages of SB is that you can vary your stake size. Dax contracts are huge (€25 a point) the vast majority of clients trade in smaller size than this. The average stake size on the FTSE and Dax with CS is around £5
Anyway after a month (trading in actual contract sizes) I would really be quite surprised if the difference between the two made up more than a plate of beans.
It would be interesting if an independant reader made this attempt.
Simon