Spreadbetting v Futures

[The Beyonder]

Hi All,

Since joining this site only a few days ago, I've already picked up a few tips from reading the BBs, great to see so many informed people.

I know there's a thread comparing SB with CFDs so I hope I'm not repeating anything here. My query is with Futures and how they compare (if this has been done on another board, pls accept my apologies and direct me to the relevant place).

First a bit of background that might help you answer.

I SB the daily Dow with IG. I'm still feeling my way so only trade about 1 - 2 per week for £5/pt. When I'm more up to speed (many moons ahead) I hope to be doing, say, 2 - 3 per day for about £20/pt. I'm also thinking of moving to D4F because their spreads are apparently better.

I see a lot of people say that they prefer to use Futures instead of SB because the spreads are tighter.

My questions are:
1. Are they easy to understand? (I'm a simple soul and feel the mechanics behind SB are as easy as pie)

2. More importantly, as their are commissions to pay per trade as well as tax, even with tighter spreads is it cheaper in the long run to trade Futures rather than SB?

Your help will be much appreciated.

Best regards all

The Beyonder

 

[Helenqu]

Hi Beyonder,

Check this out for one view of it

http://www.eurostoxx50.co.uk


Spreadbets vs futures bit

 

[mmillar]

Hi,

If you want to get an argument going on this board then SB vs. futures is the way to do it. I’ll try and be neutral and just give you some further reading.

There are probably three issues – 1. the similarity/differences between futures and SB, 2. the costs of futures vs SB, and 3. the tax issues.

1. In theory, futures and SB are the same – the mid price given by a SB company and the future price should be the same. Some people think they are, some don’t. I would suggest you open an account with a direct access futures broker and then you can do your own comparisons. Most(?) people on this board use IB (www.interactivebrokers.co.uk) because they are the cheapest. There are, of course, plenty of other brokers to choose from - there is a list and reviews here http://www.trade2win.co.uk/reviews/index.php?catid=3. As an aside, I would suggest that everyone has at least two accounts with different brokers so that if one goes down you can cover any positions with the other.

There are some posts here on SB bias…

http://www.trade2win.co.uk/boards/showthread.php?s=&threadid=5225&perpage=30&pagenumber=1

http://www.trade2win.co.uk/boards/showthread.php?s=&threadid=4516


2. With SBs your cost is just the wider spread. With a direct access broker you pay the market spread (usually 1 point or less) and then commission. I think IB charge $4.80 per round trip on the Dow e-mini.

On this thread there is a price comparison between SB and direct access. http://www.trade2win.co.uk/boards/showthread.php?s=&threadid=4728

Generally, direct access brokers are better if you scalp and if you want to trade higher values. SBs are better if you take longer term trades and if you want to trade small amounts (£1 per point). You need to do your own comparisons based on how much you trade with and the number of points you, on average, win/lose.


3. There is a long thread here about tax issues. My summary is if you have a job and SB in your spare time then it is tax free, otherwise the views are inconclusive. With direct access you will have to pay capital gains tax (after your CGT allowance).

http://www.trade2win.co.uk/boards/forumdisplay.php?s=&forumid=70

HTH

mmillar

 

[peto]

Hi Beyonder...Good link there from Helen...

I have accounts with D4F and also trade futures with IB. You're planning short term day trades so spread is very important, with d4f its 5 points and futures (during market hours) are mostly about 1 point, but this widens frequently to 2 points briefly and outside normal market hours can be 6 or7. Stops can be placed at a min of about 10 points away from the current price with with d4f, but as close as you want with futures. IB commissions are about the cheapest around at $2.40 per trade or $4.80 for the 'round trip' which equates approx to a widening of the spread by one point. (because 1 contract = $5 per point.

The basics of trading are nearly as easy to understand as SB, although the trading platform takes some getting used to (try their demo platform to get the hang of it). Don't expect the IB to have the same 'friendly' customer service help...if anything goes wrong with opening or closing a trade with anyones server then it's mostly down to you! Customer service for trading is an international phone call and a tedious wait in a queue (although there's a quick short cut to close a trade for $30). I understand that some UK futures brokers are much more user friendly but you'll pay about twice the commissions.

The tax issue is only relevant if your net gain for the year exceeds £7500. I have never succeeded in acheiving this with a SB company! I hope to with futures.......one day.....

 

[2468steve]

Hi,
This is my first post on this site,and am grateful to you guys for sharing your experience.I've been trading indices,FTSE,DAX,DOW for about 18 months and confess I still believe I have a lot to learn.
I have both futures and SB accounts,but mainly use SB,although I dislike the increased spread.I find the main advantage of SB over futures account is the ability to take a FTSE position out of hours if the US rises or tanks significantly after we close.
Is this a major benefit of SB or is there a way to trade futures before the following mornings open(out of hours).
Thanks.

 

[Skimbleshanks]

hi 2468steve - welcome to T2W

I find the main advantage of SB over futures account is the ability to take a FTSE position out of hours if the US rises or tanks significantly after we close.

This is an interesting observation, and one that I don't recall seeing discussed very much on T2W in the past.

 

[bonsai]

skimbleshanks
the sb's have different approaches on this so people should be careful especially with Fins. But D4F is good.

also after the uk futures market closes,sb's use algorithms based on S&P500 . but sometimes you wouldnt think so !.
Its all a bit 'adventurous'.

My main use is to leave open a D4F position opened during the day until after both Lse and UK Futures markets close.
It is surprising how many rallies start about 4.20pm ! :?:

 

[2468steve]

Bonsai,
I have found the use of SB invaluable at times,if i have an open FTSE at UK close,and then the US markets decide to go against me.The SB account allows me to either lock in gains or protect against increased losses by opening an opposite trade to my futures position.
As you say,the SB base their prices on S&P and Globex after hours,and on occasions this does throw up some anomolies in differing prices quoted by SB,but it does sometime allows traders to take advantage of the price difference when one firm is out of synch with the rest

 

[bonsai]

2468
another interesting feature you may have noticed is how often,
after dancing up & down, ftse after hours returns to within spitting distance of the uk futures close.

or should I say 'gapping' distance.

often gives the opportunity to take a position on the close of the dow for 10/20pts immediately the sb's start in the morning.

 

[2468steve]

Bonsai,
interesting.I have often found that after a big US move after our close it is worth opening a FTSE position in the same direction at the US close.More often than not there is more follow through the next morning,allowing a profit,before the cash market opens.
Didn't really see this as much of a strategy,more of luck,but hey...who cares!

 

[The Beyonder]

Thanks all for your contributions to my thread.

Helen – thanks for the link. Most of the pros/cons seem to be the same, but two do stand out. Firstly the tax issue (which is a whole argument in itself).
But also I’m intrigued by the con against SB which states “You are trading the market via an intermediary who play by their own rules.” Is this in reference to SBs widening the spread in volatile markets to shake you out and/or biasing the price against you? (Though there’s disagreement about whether this happens)

mmillar – Thx for your post, excellent. I had a look at the other threads you mentioned, it all got a bit heated didn’t it and with no firm conclusion. It seems we can all be tetchy souls at times.
My style is looking for bigger gains than just a couple of points so maybe I’ll stick to SBs.

peto – thx also for your post. I have heard some horror stories about D4F here regarding re-quotes etc but I’ll try their demo. One thing though, have you had problems with wider spreads in volatile markets? IG’s spread for the Dow is always 8pts in mkt hours.

Regards all

 

[Helenqu]

Hi Beyonder,

Yes they are the market makers. In some instruments that seems to make a big difference in terms of bias (particularly the Dow) in other less. I also see them occasionally not moving the price when the futures price is moving, which means you miss out on a couple of points.

I think generally it's horses for courses. SB for longer term futures for scalping. Both are useful.

 

[peto]

"One thing though, have you had problems with wider spreads in volatile markets? IG’s spread for the Dow is always 8pts in mkt hours. "

I've found D4F to maintain a constant spread at virtualy all times (one point wider after normal market hours). They only widen for violent 'crash' situations (eg after 9-11) but I should think all the sb co's did then!