Spreadbetting - Just for small accounts, Day Traders or Shorts ???

[*JDR*]

I am considering spread betting as an option as I like the idea I can go long or short and have easy access to a number of markets, though initially I am planning to concentrate on shares.

Although I have many more months self-education to go, I opened a spread betting account at iii.co.uk to have a look around and receive their free 10 week "education".

I should also add that I intend on doing this EOD and will not have time to actively trade during the day.

Today I received a pdf from iii and here is how they calculate their longer term spreads.

Fictitious company ABC market is at 890p - 892p

1. Cost of Carry (int= 4.5%) 891*4.5* 132 days to expiry/365 days in year = 905.5
2. Market spread = 2
3. Dealing spread = .7% * 905.5 = 6

Total Spread = 8

So spread is 902-910

I will qualify the next statement by saying that each trade I make will be the equivalent exposure of £10,000 (if I actually bought the shares) with a stop loss at £500 (which is a .5% loss of total equity each trade)

So If I want to go long. before I make money...

Spread Betting: share price has to increase to 911 a 2.2% increase.

Internet Broker : price has to only increase to 8.98 a 0.7% increase to start making money. (Based on £20 in/out + Stamp Duty at £50)

Also, going long with spread betting means my stop loss is hit at 860 a 3.5% change against me instead of 852 a 4.4% change. Which seems a large difference and I could keep getting stopped out unnecessarily.

And another thing. if the share price increases to 935 i make less than £300 with spread betting but £432 with a broker. Even with 20% tax I am still in front.

However, with spread betting, going short, if the share price stays the same to end of expiry I am making money?? Am I ?
Also it seems the share price has to hit 952 for me to stop out a massive 6.8% change.

It seems like SB is good for bears but bad for bulls.

Please help. Am I being an obtuse newbie or is what I am saying correct?
Or is everything based on the futures price and therefore my calculations are wrong ?

Thanks

 

[Pat494]

My advice to a newbie "wanna be wealthy" ( nothing wrong with that ) is open a £500 account with Finspreads.com. The reason is that they do a special offer to beginners of ultra low bets eg 1 penny per point. Get your confidence up before you run out of money, here. Crawl before you walk. The money markets are a jungle for the unwary. The next thing you will probably want to know is, where can you find a system to make you loads of dosh in next to no time.
By the way obtuse means fat or wide. Maybe you mean abstruse ??
Patience, self discipline and hard work will get you there probably but not definately.
If you think I am being a patronising, etc etc you have a lot to learn, but it is a rewarding and interesting journey. Good luck

 

[*JDR*]

Thank you for your adice.
However, I made no statements that I "wanna be wealthy"... the fact that I will EVENTUALLY be able to tolerate a risk of £500 per trade has nothing to do with me wanting to be anything.

Again. thanks for your reply.


obtuse
–adjective
1. not quick or alert in perception, feeling, or intellect; not sensitive or observant; dull.
2. not sharp, acute, or pointed; blunt in form.
3. (of a leaf, petal, etc.) rounded at the extremity.
4. indistinctly felt or perceived, as pain or sound.

obtuse
• adjective
1 annoyingly insensitive or slow to understand.
2 (of an angle) more than 90° and less than 180°.
3 not sharp-pointed or sharp-edged; blunt


Happy to help with your education also.

 

[neil]

JDR
Take Pats advice with some respect. Read the "K.Lab" and "Traderpedia" links at top of the page. Use "Search" to access past/current threads on spreadbetting.Take care.

 

[*JDR*]

Neil - Thanks for your advice also. As I said in my post I am just at the start of my education. I have found all the articles on T2W invaluable.

I intend to do all that Pat said. I have no intentions of stepping into even a 1p trade for a good few months yet.

The crux of my post was to try and work out if SB is for me. If all goes well (paper trading and then trading with small amounts), in about 2 years I will be willing to take the risk that i said in my post. But I see no point in getting into SB if it is not going to work for me in the long term.

Oh, however, I do take a slight exception to that fact that just because I am new to trading, that I am in it as a "get rich quick scheme" or something of the like.

Cheers.

 

[Jack o'Clubs]

Back to your main question, the answer is, yes, you need to think through your calcs a bit because while you're almost there you need to account for i) the relationship between the futures price on which a quarterly bet is based and the cash price and how it changes with time, and ii) the spread and the opportunity cost of interest forgone in your brokerage costs.

In practice trading the underlying is likely to be slightly cheaper than a spreadbet, so what some do (well, me, anyway) is to trade stocks until the annual CGT limit is used up and then switch to s/bets for the tax advantage.

Other options on the short side? Well.... CFDs, warrants, options and single-stock or index futures might be worth looking at, but for simplicity s/betting is probably the way for you to go.

Search the threads on different s/bet providers - there's a lot of difference between the sharp practices of some (no better than bookies) and the better ones out there.

 

[*JDR*]

i) the relationship between the futures price on which a quarterly bet is based and the cash price and how it changes with time

Yes, you are right. Didn't even enter my mind. Must investigate this further.

i) the spread and the opportunity cost of interest forgone in your brokerage costs.

Again, well pointed out. 5% interest "risk free" is not irrelevent if I can get that AND still try and trade. There is no interest paid on cash that is in a trade...
So I should be calculating the difference between commiting my cash to the market (e.g. buying shares) and the cash to the margin that is sitting in an SB account and the interest earned on the difference, this gets added to my SB trading option.


Thank you very much for your reply Jack.
Very helpful.

 

[Pippppin]

Jack O'Clubs.......an interesting point about trading stocks until your CGT tax allowance has been used, then switching to spreadbetting. As regards tax, some on T2W have argued that mixing trading instruments (stocks, CFD's, speadbetting etc) would be viewed in the eyes of the IR as professional trading, and thus all profits would be liable to tax.

Your method seems highly sound, a good way of minimising tax liability

 

[Pat494]

Thank you for your adice.
However, I made no statements that I "wanna be wealthy"... the fact that I will EVENTUALLY be able to tolerate a risk of £500 per trade has nothing to do with me wanting to be anything.

Again. thanks for your reply.


obtuse
–adjective
1. not quick or alert in perception, feeling, or intellect; not sensitive or observant; dull.
2. not sharp, acute, or pointed; blunt in form.
3. (of a leaf, petal, etc.) rounded at the extremity.
4. indistinctly felt or perceived, as pain or sound.

obtuse
• adjective
1 annoyingly insensitive or slow to understand.
2 (of an angle) more than 90° and less than 180°.
3 not sharp-pointed or sharp-edged; blunt


Happy to help with your education also.

Well that's gratitude for you ! Just trying to be helpful and save you a load of money !
And by the way advice is spelt with a V in the middle !!
You will find it in the dictionary under A !!

 

[rols]

Well that's gratitude for you ! Just trying to be helpful and save you a load of money !

Plus ca change, plus c'est la meme chose....