Spreadbet Trick or am I wrong??

[Wallyuk]

Hi,

Im new to trading, Poker is my game, however have recently become interested in trading forex (see http://www.trade2win.com/boards/showthread.php?t=26339 ).

Spreadbetting seems to be a great idea for a UK forex trader in terms of tax. As a poker player I don't pay tax and any way to shield any trading profit, assuming I make any, is very appealing.

The downside or so i have read on these forums, is that spreadbet firms play sneaky games, not filling orders or filling at incorrect prices, and have bigger spreads etc. This makes them less profitable and so less appealing.

I wonder if it might be possible to do as follows :

Trade a Forex acount at a regular broker, then on a weekly or monthly basis hedge the profits over onto a spread bet account, thus avoiding tax.

So say I day trade for 1 month on a specific forex broker and make 10k profit.

I then open a trade on my forex broker going long on xyz and open a trade going short on the same xyz in my spread bet account. Provided the market moves in my favour I make a 10k loss in my forex broker account and a 10k profit on my spreadbet account - I would lose some of the profit due to spread and any price discrepancies, but im sure its much less than paying tax.

If the market moved in the wrong direction, then i would have 20k in forex broker and have lost 10k in my spreadbet account. So i simply start a new hedge trade attempting to switch over the 20k.

In order to do this you would need access to significant funds in your spreadbet account, but im sure if my logic is correct it could be worthwhile.

Now i would like to say that im totally new to all this and that all of the above might be fundamentally flawed for reasons im not aware of. If this is the case I apologise for taking up your time.

Regards

Karl

 

[Trader333]

I am sure that it can be done, but in the end you will have to ensure that you somehow make more in your SB account than that of a normal broker. Also you have not said whether your preference is for day-trading or position trading as this will have an impact on your style. In my view for this to work you would have to take a long term approach.


Paul

 

[Wallyuk]

Hi Paul,

When you mention making more in the SB account, I actually figured this to be a deposit, and not profit from trading.

If you didnt have deposit funds available to hedge the entire balance from your broker account in 1 trade, you could start by using a smaller deposit, transfer smaller sums across, until the SB balance grows sufficiently large.

As for my preference of day or position trading, im so new I'm not entirely sure. I think ill likely favour position trading for long term capital growth and I assume position trading will be less demanding in terms of time. You also mentioned in the PM that intraday is more difficult so this would point me towards position trading also.

 

[Trader333]

If you didnt have deposit funds available to hedge the entire balance from your broker account in 1 trade, you could start by using a smaller deposit, transfer smaller sums across, until the SB balance grows sufficiently large.

Karl,

It is SB profits that are free from tax not profitable deposits from other sources that are placed with them. So let's say that you make $100K profit with a conventional broker, you are somehow going to have to make that same profit with a SB company to be exempt from any tax.

The question is how will you do it ? My guess would be that you would need to deposit a huge amount of cash and then simultaneously take a huge position maybe long with a conventional broker and short with a SB company on a highly volatile instrument, ie one that will move both up and down a lot. As soon as the market has moved the SB into a large profit then close both positions at the same time.

This would still need some careful planning in my view.


Paul

 

[Wallyuk]

Hi Paul,

I'm not expecting profitable deposits to be free of tax. The deposit is simply a means to hedge the money across.

This whole method is simply to take my profit from trading the standard broker and move it across to the sb account to avoid tax.

The amount you need in the sb account is proportional to the amount of profit you would like to transfer from forex broker account, and you could also hedge it in increments.

Lets say I have 10k in trading profit this week in my forex broker account and 1k in my sb account.

I could hedge 1k across from the forex account into sb account. Now my balance in sb account is 2k and 9k in the forex account.

So I repeat and move 2k across meaning 7k ,3k split. Repeat as necessary until all profits are switched. As your SB account balance grows future weeks would just be hedged in a single trade.

If you did this on a weekly basis the position wouldn't need to be that big at all.

 

[Wallyuk]

Hi Laptop1,

It seems you totally misunderstood my post.

Im not suggesting this hedge would actually create a profit.

Its exactly as you say by hedging the money accross I would make a loss.

What im saying is if im a profitable trader and make 10k this week trading on a standard forex broker. I can pay 40% tax on this 10k or i can hedge it across to my sb account and take a small loss in spread and price dicrepancies, but save the 40% ( less the hedge fees) in tax payments.

So in your words :

"You lose £ 5k on one taxable account and Win £5k on another non taxable account, when you take the spread and commission it would work out with a slight loss in capital but a big gain in tax relief"

 

[laptop1]

Well, I guess it can be done. Lets say you did win 10k on your standard forex broker,You will now move 1 k a time over to a spreadbet account.So the next TRADE you would need to lose 1k on your standard forex account and win 1k on your spreadbet account? However, you would need to make the right call everytime making sure the spreabet account always wins to buld it up to 10k... Best way to do it is, hedge the whole 10k, wait for an over bought market then sell 10k of forex in you spreadbet account and buy 10k of forex in you standard forex account. Then just wait to make 10k in you spreadbet account and lose 10k in your standard foex account. you have now hedge 10k tax free, you could also claim for losses in your standard forex account....Hope that makes sence

 

[PipStar]

I dont think it would be worth the time and effort as the problems you encounter with SB firms are also present with standard brokers.
Plus, you assume that you will make a profit with the standard broker in the first place, which is not always evident. If you are going to be a profitable trader, you will make it with any broker you use, IMHO. Might as well do it tax free direct with the SB firm.

 

[Trader333]

Karl,

The issue here is being able to predict which way the profit will go in both accounts consistently and that is no mean feat. Let's say you make a $10K profit in your main account and then decide to hedge that in a SB account but that the market then moves opposite to that needed to make a profit in your SB account. This could keep happening and you may find you cannot get to where you need to avoid the tax.

The key is being able to do this only once in the whole tax year and this is why (in my view), to be able to do it would require a simultaneous Long and Short position in a highly volatile instrument where you know that you will get wild swings in profit and loss and close the trade when the SB account has moved into a large profit.


Paul

 

[Jack o'Clubs]

An easier alternative might be to find a s'bet firm that doesn't play tricks. If you trade heavily enough to get the comms down to a sensible level it may be worth looking at FuturesBetting which will let you trade currency futures with direct market access, but in a spreadbet 'wrapper'. You need to trade reasonably heavily for the their fees to be worthwhile, and if you're scalping you may find the additional comms offset any gains. At least you don't have to worry about the firm siding against you though.

The other thing is that you have over £9k of capital gains to play with before this becomes an issue. I would say that any newcomer to trading worrying about the tax impact, before they've made the £9k from where it presents an issue is probably putting the cart before the horse.

 

[Trader333]

There is a strong argument to say that it is better to pay tax on a profit than no tax on a loss. Also you cannot offset losses incurred using a SB company but you can using a conventional broker. It really depends on the level of confidence in making a profit to start with.


Paul

 

[gle101]

Hi,

Im new to trading, Poker is my game, however have recently become interested in trading forex (see http://www.trade2win.com/boards/showthread.php?t=26339 ).

Spreadbetting seems to be a great idea for a UK forex trader in terms of tax. As a poker player I don't pay tax and any way to shield any trading profit, assuming I make any, is very appealing.

The downside or so i have read on these forums, is that spreadbet firms play sneaky games, not filling orders or filling at incorrect prices, and have bigger spreads etc. This makes them less profitable and so less appealing.

I wonder if it might be possible to do as follows :

Trade a Forex acount at a regular broker, then on a weekly or monthly basis hedge the profits over onto a spread bet account, thus avoiding tax.

So say I day trade for 1 month on a specific forex broker and make 10k profit.

I then open a trade on my forex broker going long on xyz and open a trade going short on the same xyz in my spread bet account. Provided the market moves in my favour I make a 10k loss in my forex broker account and a 10k profit on my spreadbet account - I would lose some of the profit due to spread and any price discrepancies, but im sure its much less than paying tax.

If the market moved in the wrong direction, then i would have 20k in forex broker and have lost 10k in my spreadbet account. So i simply start a new hedge trade attempting to switch over the 20k.

In order to do this you would need access to significant funds in your spreadbet account, but im sure if my logic is correct it could be worthwhile.

Now i would like to say that im totally new to all this and that all of the above might be fundamentally flawed for reasons im not aware of. If this is the case I apologise for taking up your time.

Regards

Karl

Yes you sure have a "positive problem" to deal with. If winning this kind of taxable profit trading with a Forex broker, could be possible on a consistent basis, I myself would consider shifting over the trading part to a business setup. You will be able to deduct trading profits against other costs within the company. It is also possible to deduct a negative trading result in 100% against other profit ventures in that company. I don't believe it would be advisable to shift over the profit to SB just to get rid of the taxes, as it will take away your concentration from your apparent winning streak with that particular Forex broker. Very likely, you have a strategy that is right at the moment, but things might change abruptly in the months to come. No trading strategy is fool proof. Having a trading setup that solely aims at getting rid of taxes might turn out to be very costly in the long run.

 

[aeburton]

I have pretty much the same question as Karl (see http://www.trade2win.com/boards/showthread.php?t=26349).

This week I have set up a small experiment buying Out Of the Money September Calls and Puts in my broker account and selling the same in my spreadbetting account. Come expiration day at the end of next week, I will have legally moved some trading profit out of the taxman's reach.

I chose the options firstly because its my area of experience and secondly because they are most likely going to expire worthless in a short space of time. As long as the underlying stock index continues to trade in its range, the plan works.

Its not perfect though:
1. Its going to have cost me about 8% in spreads and comissions
2. I have tied up trading capital and will have moved just 14% of the SB deposit amount
3. There's a risk that I could end up with more in the broker account than I started with

Anyone improve on this plan? Alternatively, does anyone know of a Spreadbetting firm that trades US Index Options and provides both Contingent Order and Limit Order facilities on Options? (cos then I could move my trading)

Alan