Spread Betting, what is the point?

[Tomski]

I trade fixed income and currencies for a living, but have no limits for equities. Recently I had an opinion on an individual US stock and thought that the best way to execute a geared bet would be through my spread betting account I opened ages ago but have never really used.

It would be an underestimate to say my experience was terrible. Apart from the front end being ridiculously unintuitive, when trying to close my position in a busy market it took me five attempts and around 8 mins to executed the order.

I truly don't understand why people would trade like this. For anybody trading more than £10 per point, why would you bother, surely it would be better to use high end systems and trade futures. I understand that the profits are tax free, but the amount lost in order execution would more than make this up.

Can somebody please explain the benefits of spread betting. I can understand why it would appeal to people with a hobby who aren't betting much, this question is aimed at those who do it for a living, or at least part of.


Cheers

Tom

 

[Pippppin]

I have been speadbetting for some time, and I am increasingly asking the question what is the point?

 

[Pippppin]

spreadbetting, not speadbetting!

 

[NotQuiteRandom]

Having executed approx 10,000 spread betting orders over a period of 7 or 8 years I can't understand why not. Sure you get screwed on a few transactions if you trade too much in a short space of time, or execute in size, but the real market is not perfect either.

The various firms each have their strengths and weaknesses but I don't know what you are complaining about. In order that spreadbetting could grow to the size it is today as an industry, with several firms making just shy of GBP 100m profit a year, the dealing interfaces must be pretty intuitive. Still, you can't please all the people all the time.

Just my 2c.

NQR

 

[Mornington Crescent]

Tomski
you seem to have had a bad experience. Pity you didnt name the sb you are using.

Do not agree with you at all about the tax position.

It is one of the major reasons for using sb's.

 

[Tomski]

It's taken me a while to get back to this but here's a bit more information.

I was using CMC markets. To close my position it took five attempted orders, and 6 mins, in which I lost ~60 ticks. In the end I closed the position by phones to a dealer, and to say that the time it took them to answer was long would be a massive underestimate. To me that is absolutely ridiculous.

I then rung them up to asked why I didn't get filled they explained that it was because there was no one willing to take the other side of the trade, well two things, I was under the impression that CMC was the other counter party is this trade, which would mean there didn't need to be anyone else, and second, if this is how spreadbetting works how comes you can't see other people bids and offers.

To me this seems almost illegal, They can happily not fill you, or say that you were not filled if it benefits them, and they can basically refuse to answer the phone. They can basically decide if filling you suits them and act accordingly. It feels like a complete monopoly.

And on that note NotQuiteRandom, no wonder spreadbetting companies are as big as they are, if people continue to use them when they quite clearly hold the nuts hand no matter what, of course they are going to make stupid amounts of money.

And DoubleSix, because of the reasons I have just mentioned above I can't see the tax benefits outweighing the lack of transparency in the spreadbetting market. And for that reason I don't understand why people trading lots of money would use such a system.

To me the real market and systems such as TT are so much better, yes there is manipulation, but then there is skill in seeing it, at least you have a chance in the real markets place.


T

 

[klw]

It's taken me a while to get back to this but here's a bit more information.

I was using CMC markets. To close my position it took five attempted orders, and 6 mins, in which I lost ~60 ticks. In the end I closed the position by phones to a dealer, and to say that the time it took them to answer was long would be a massive underestimate. To me that is absolutely ridiculous.

I then rung them up to asked why I didn't get filled they explained that it was because there was no one willing to take the other side of the trade, well two things, I was under the impression that CMC was the other counter party is this trade, which would mean there didn't need to be anyone else, and second, if this is how spreadbetting works how comes you can't see other people bids and offers.

To me this seems almost illegal, They can happily not fill you, or say that you were not filled if it benefits them, and they can basically refuse to answer the phone. They can basically decide if filling you suits them and act accordingly. It feels like a complete monopoly.

And on that note NotQuiteRandom, no wonder spreadbetting companies are as big as they are, if people continue to use them when they quite clearly hold the nuts hand no matter what, of course they are going to make stupid amounts of money.

And DoubleSix, because of the reasons I have just mentioned above I can't see the tax benefits outweighing the lack of transparency in the spreadbetting market. And for that reason I don't understand why people trading lots of money would use such a system.

To me the real market and systems such as TT are so much better, yes there is manipulation, but then there is skill in seeing it, at least you have a chance in the real markets place.


T

I would make an official complaint in writing, send it by registered post.If you are not happy with the outcome then go to the F.S.A.

That is just daylight robbery.

Keep us posted on what happens.

 

[dbphoenix]

Can somebody please explain the benefits of spread betting.

I've wondered this myself. I look forward to a "current" answer.

Db

 

[Jack o'Clubs]

I've wondered this myself. I look forward to a "current" answer.

Db

Hmm, let me see. Pay 40% tax on gains above £9k each year... or not. Trading UK stocks you avoid 0.5% stamp duty on every transaction. I'd have thought those pretty compelling reasons. Aggressive intra-day trading it works less well as various posters on T2W have documented, but for multi-day position trading - I've been doing it for years and never been stiffed. I guess because it's a win-win. The spreadbet guy can make money on the spread and interest charge depending on whether he wants to hedge me or not (I would guess that for large-ish transactions on smaller cap shares they probably do), I save a bundle in tax.

I've had far more problems with bog-standard retail stock brokerages to be honest. Last May, in the downturn, I was trying to offload stock when the stock-broker's website was down and they weren't picking up phones. And when I finally got through gave me a MM quote that completely took the p!ss as I was trading above NMS. In the end I hedged the position out with a spreadbet firm and closed it all off on a quieter day... Another broker I used routinely made mistakes in its settlements and statements...

 

[dbphoenix]

Thank you, Jack.

 

[Jack o'Clubs]

Thank you, Jack.

I do agree though that too many people are drawn in by the tax savings first, when the first objective should be to get to the stage where you've got sufficient gains for it to be a problem!

 

[dbphoenix]

That would seem to be logical. If one wants only to practice and learn, why not trade ETFs?

 

[Pippppin]

Hmm, let me see. Pay 40% tax on gains above £9k each year... or not. Trading UK stocks you avoid 0.5% stamp duty on every transaction. I'd have thought those pretty compelling reasons. Aggressive intra-day trading it works less well as various posters on T2W have documented, but for multi-day position trading - I've been doing it for years and never been stiffed. I guess because it's a win-win. The spreadbet guy can make money on the spread and interest charge depending on whether he wants to hedge me or not (I would guess that for large-ish transactions on smaller cap shares they probably do), I save a bundle in tax.

I've had far more problems with bog-standard retail stock brokerages to be honest. Last May, in the downturn, I was trying to offload stock when the stock-broker's website was down and they weren't picking up phones. And when I finally got through gave me a MM quote that completely took the p!ss as I was trading above NMS. In the end I hedged the position out with a spreadbet firm and closed it all off on a quieter day... Another broker I used routinely made mistakes in its settlements and statements...

Which spreadbetting companies do you use? And which do you avoid?

 

[Jack o'Clubs]

I use CMC and IG Index. Avoid Finspreads since in my experience they take their prices off-line at the first hint of a fast market. I also use Futuresbetting, but that's a slightly specialist case.

For brokers avoid Barclays like the plague, HSBC not much better, Hoodless Brennan cheap and cheerful for execution only, these days most of my non-spreadbet stuff goes through Interactive Brokers.

 

[Pippppin]

I use CMC and IG Index. Avoid Finspreads since in my experience they take their prices off-line at the first hint of a fast market. I also use Futuresbetting, but that's a slightly specialist case.

For brokers avoid Barclays like the plague, HSBC not much better, Hoodless Brennan cheap and cheerful for execution only, these days most of my non-spreadbet stuff goes through Interactive Brokers.

Thanks

 

[Kinger]

I used Finspreads and experienced the same issues, just opened an IG account.
Looks pretty good.

 

[NotQuiteRandom]

My experience mirrors Jack o' Clubs.

The CGT issue is a major factor, I just don't see why one would trade any other way.

One note of caution however, most of them add slightly OTT spreads on options. I trade vanillas through IB and just pay the tax. IGs option prices are awful but I guess it is a side business for them.

 

[Riverland]

The fact that you can also set guaranteed stops is also pretty advantageous. I know it depends on the volatility of what you trade and for how long you hold. But profit warnings and the like can often trigger a +50% price drop, typically when the market opens, thus making standard stops useless. I speak from bitter experience!

 

[nobrainer]

Its pretty simple for short term traders..............if you want to make peanuts,then spreadbet. If you want to make a good living, pay the 40% tax and go direct access.

 

[bluetipex]

Its pretty simple for short term traders..............if you want to make peanuts,then spreadbet. If you want to make a good living, pay the 40% tax and go direct access.

What an ignorant comment.

The amount of money you make is patently NOT dependent on whether you spread bet or use Direct Access. Good traders will make money using either method. Bad traders will lose money using either method.

The spreadbet vs. Direct Access argument is really, really, really boring now. Just choose whichever method best serves your purposes. They each have their advantages and disadvantages.