spreadbetting and just trading, is there a difference?

[adriandecleir1]

Hi all, I would appreciate any help here, I know this kind of question is quite obvious but I looked in the FAQ and there was nothing really giving an answer. Doing searches didnt really help as the words Id be searching for are probably the most common words used on this site.

Anyway I set up a demo account with Tradefair Portal - Trade Binaries and Spread betting contracts on financial markets and started to do some spread betting, I understand the concept of it and am starting to understand different systems using various indicators. My point is I am understanding the whole chart side of it.

Having read threads on this forum and other forums Ive noticed comments about spreadbetting being alot different to trading. I.e. your betting against market makers etc.
Anyway I went and set up a demo account with fxcm, thinking this time i was going to be TRADING not spread betting, while I fully understand the concept of what im doing on these sites I cant seem to figure out what the difference is between spreadbetting and trading.
They both seem to be about buying/selling at a certain price, setting your stops and limits and hoping the price goes in your direction.

Can anyone recommend me software or a website where i can trade but am not spreadbetting.
Sorry if Im missing something really obvious here but any help will be appreciated.

 

[Windowsill]

Hi all, I would appreciate any help here, I know this kind of question is quite obvious but I looked in the FAQ and there was nothing really giving an answer. Doing searches didnt really help as the words Id be searching for are probably the most common words used on this site.

Anyway I set up a demo account with Tradefair Portal - Trade Binaries and Spread betting contracts on financial markets and started to do some spread betting, I understand the concept of it and am starting to understand different systems using various indicators. My point is I am understanding the whole chart side of it.

Having read threads on this forum and other forums Ive noticed comments about spreadbetting being alot different to trading. I.e. your betting against market makers etc.
Anyway I went and set up a demo account with fxcm, thinking this time i was going to be TRADING not spread betting, while I fully understand the concept of what im doing on these sites I cant seem to figure out what the difference is between spreadbetting and trading.
They both seem to be about buying/selling at a certain price, setting your stops and limits and hoping the price goes in your direction.

Can anyone recommend me software or a website where i can trade but am not spreadbetting.
Sorry if Im missing something really obvious here but any help will be appreciated.

I wouldn't worry about the differences.

Some would complain that spreadbetters skew the price and with Direct Access platforms, you get THE price....I'm not convinced and i'm perfectly happy with SBs.
If you are trying to trade very shorrt term ...trades lasting a few minutes or less...direct access may be better.
Both are vehicles allowing you to trade. If you get it right you will make money and with Spreadbetting you don't have to worry about the tax man....at least for sometime.

 

[donaldduke]

The advantage of using a Spread Bet type of company is the low margin requirements, normally much less than a traditional broker. Most bucket shops will reduce margin requirements if you have a stop in the market. Most people who want to play this game are undercapitalised, having only a few £1000s (or even less!) to play with.

But you really need to know what you are doing when you use tight stops to take advantage of this. Otherwise these sharks will eat you alive very quickly.

There used to be bigger tax advantages to spread betting. But these days you get a 10K tax free CGT allowance (+ another 10K if you have joint account with your spouse) and then its only 18% after that. So there really isnt a tax incentive to go the SB route if you bet reasonably often (the extra spreads imposed over a years of betting add up and eat into most if not all the 18% tax saved).

 

[adriandecleir1]

Thanks for the replies, I think Im starting to see the difference from reading various articles. I put more effort into reading about charts and indicators than I did about actually betting, so i ended up lost not knowing the difference between brokers,spreadbetting, cfds etc.

 

[Lee Shepherd]

The advantage of using a Spread Bet type of company is the low margin requirements, normally much less than a traditional broker. Most bucket shops will reduce margin requirements if you have a stop in the market. Most people who want to play this game are undercapitalised, having only a few £1000s (or even less!) to play with.

But you really need to know what you are doing when you use tight stops to take advantage of this. Otherwise these sharks will eat you alive very quickly.

There used to be bigger tax advantages to spread betting. But these days you get a 10K tax free CGT allowance (+ another 10K if you have joint account with your spouse) and then its only 18% after that. So there really isnt a tax incentive to go the SB route if you bet reasonably often (the extra spreads imposed over a years of betting add up and eat into most if not all the 18% tax saved).

Just to make sure I haven't misread, are you stating that betting with spreadbetting companies is taxable in the U.K as an individual?

 

[Tenapenny]

Just to make sure I haven't misread, are you stating that betting with spreadbetting companies is taxable in the U.K as an individual?

I think he's just saying that the tax-free advantages of SB aren't as great as they used to be when you compare it to direct access with x number of trades. With a spouse's cgt allowance added to yours, you can make 20K on direct access before you pay cgt at 18%. Compare that to the spreads you pay over a year and direct may be a better route to go down.

 

[new_trader]

I wouldn't worry about the differences.

Some would complain that spreadbetters skew the price and with Direct Access platforms, you get THE price....I'm not convinced and i'm perfectly happy with SBs.
If you are trying to trade very shorrt term ...trades lasting a few minutes or less...direct access may be better.
Both are vehicles allowing you to trade. If you get it right you will make money and with Spreadbetting you don't have to worry about the tax man....at least for sometime.

You wouldn't worry about the differences? You need to understand exactly what the difference is before you can say whether it's worth worrying about!

What do you mean you are not convinced? With DMA you get THE market price of the instrument you are trading and with S/B you don't. I have a DMA account and I have spread-betting accounts. Do you have both with which you can make a valid comparison? With DMA you get the actual bid/ask price which together make the market price, the S/B co's are just quoting their own bid/ask price which is their spread.

 

[Lee Shepherd]

I think he's just saying that the tax-free advantages of SB aren't as great as they used to be when you compare it to direct access with x number of trades. With a spouse's cgt allowance added to yours, you can make 20K on direct access before you pay cgt at 18%. Compare that to the spreads you pay over a year and direct may be a better route to go down.

I'm not bothered what you think he's trying to say, I've asked him directly and he'll answer if he wishes.

I'm even more unclear. So are you saying that spreadbetting is taxable in the u.k as an individual.

 

[Windowsill]

You wouldn't worry about the differences? You need to understand exactly what the difference is before you can say whether it's worth worrying about!

What do you mean you are not convinced? With DMA you get THE market price of the instrument you are trading and with S/B you don't. I have a DMA account and I have spread-betting accounts. Do you have both with which you can make a valid comparison? With DMA you get the actual bid/ask price which together make the market price, the S/B co's are just quoting their own bid/ask price which is their spread.

Well thats really helpful to a newby!

Thanks very much indeed.

 

[Tenapenny]

I'm not bothered what you think he's trying to say, I've asked him directly and he'll answer if he wishes.

I'm even more unclear. So are you saying that spreadbetting is taxable in the u.k as an individual.

Spreadbetting is tax-free for residents of the UK at the moment. With the state of government finances at the moment though, who knows, that may change. I also believe it's tax-free in Sweden, though I may be wrong.

 

[Lee Shepherd]

Spreadbetting is tax-free for residents of the UK at the moment. With the state of government finances at the moment though, who knows, that may change. I also believe it's tax-free in Sweden, though I may be wrong.

Ok, thanks for clearing that up.

 

[A Dashing Blade]

Spreadbetting is tax-free for residents of the UK at the moment . . .

This is incorrect. The only thing you can say for certain is that it is Capital Gains tax-free.

 

[BJ21]

in the UK Spreadbetting is tax free..... if it's not your only source of income !

 

[Lee Shepherd]

Dashing blade and BJ21,

Could you clarify this.

 

[BJ21]

There is no capital gains tax on profits. There is no stamp duty payable, on spread bets because thats what they are "Bets".

The reason is that under current law no betting profits are taxed, and the reason for that is that if the Revenue taxed profits they'd also have to let people offset betting losses! As more people lose money betting than make it, the Revenue's coffers fill quicker by having no tax on betting gains/losses than by having them.

There is betting duty paid on spread bets, but this is almost always paid for by the companies out of their profits, so you don't need to worry about it.

However if your only source of income is SB, ie: you spend all day trying to profit on your bets then yes you have to pay tax but if you have another source of income on which you pay inconme tax then the above applies.

BUT If your annual trading profits are under £8,200 the tax advantage is irrelevant as your capital gains will be completely tax free anyway.

 

[new_trader]

in the UK Spreadbetting is tax free..... if it's not your only source of income !

Well this is interesting. Makes me think back to high school when everyone laughed at the economics teacher when he said that a "professional" gambler would need to pay taxes...

Professional Gambler! What does that mean!? (we all asked)

Basically, he said, "If you do it for a living" :whistling

Anyway, I won't interrupt anymore...

(This was in Australia BTW)

 

[Lee Shepherd]

:!:However if your only source of income is SB, ie: you spend all day trying to profit on your bets then yes you have to pay tax but if you have another source of income on which you pay inconme tax then the above applies. :!:

BUT If your annual trading profits are under £8,200 the tax advantage is irrelevant as your capital gains will be completely tax free anyway.

Are you sure?

 

[foale]

Spreadbetting IS tax free

Dashing blade and BJ21,

Could you clarify this.

I am afraird this is not true...

it might be the theory but the reality is that its almost impossible to get the Inland Reveue to get your income from trading as treated as Schedule D income...that will always treat it as Capital gains... regardless of sole oncome...regardless of number of trades...

If you want your trading income treated as income ...you have to form a Company..then all trading will be assessed as income...

Spread betting is TAX free Period....Only an idiot would spread bet via a Company....as its TAX FREE....


95% of spreadbetters lose....why would the govt want to give 95% of them rebates on losses...as by taxing them that what they would have to do...

 

[foale]

£8200 how many years out of date is that info...!!

HM Revenue and Customs: Rates and Allowances - Capital gains tax

Its £9600 and no disputing...above is the Revenue link

However this is irrelevent for spreadbetting...

There is no capital gains tax on profits. There is no stamp duty payable, on spread bets because thats what they are "Bets".

The reason is that under current law no betting profits are taxed, and the reason for that is that if the Revenue taxed profits they'd also have to let people offset betting losses! As more people lose money betting than make it, the Revenue's coffers fill quicker by having no tax on betting gains/losses than by having them.

There is betting duty paid on spread bets, but this is almost always paid for by the companies out of their profits, so you don't need to worry about it.

However if your only source of income is SB, ie: you spend all day trying to profit on your bets then yes you have to pay tax but if you have another source of income on which you pay inconme tax then the above applies.

BUT If your annual trading profits are under £8,200 the tax advantage is irrelevant as your capital gains will be completely tax free anyway.

 

[new_trader]

I am afraird this is not true...

it might be the theory but the reality is that its almost impossible to get the Inland Reveue to get your income from trading as treated as Schedule D income...that will always treat it as Capital gains... regardless of sole oncome...regardless of number of trades...

If you want your trading income treated as income ...you have to form a Company..then all trading will be assessed as income...

Spread betting is TAX free Period....Only an idiot would spread bet via a Company....as its TAX FREE....


95% of spreadbetters lose....why would the govt want to give 95% of them rebates on losses...as by taxing them that what they would have to do...

I know I said I wouldn't interrupt, but.... It is up to YOU to TELL the IRS if you have paid too little tax or none at all. If you run your own business, you calculate your profit and loss and if you make a proft, you send the IRS a cheque, if you make a loss, you send them nothing. If you make a loss you don't write to them and ask for some money back. You offset that loss against future profits. If I'm not mistaken, you can carry losses forward for 7 years. It doesn't matter if you operate a business under a company or not. Profit and loss is all that matters to the IRS.

What I don't understand is how spread betters can explain away their mansions, fancy cars and cases of Dom Pérignon....maybe you can tell them you make hardcore porno movies for a website!..No...that would be taxed....anyway, these S/B tax debates go on...and on...and on...but nobody knows....it's a mystery....