SpreadBetting v Share Dealing

[the pro]

Happy new year to everybody.

I am new to spreadbetting and have just completed my first trade. When i first started to research the pro's and con's of spreadbetting, I couldn't find many examples showing worked examples of the difference between spreadbetting and actual share dealing, so i thought I would share with you the intimate details of my first trade which may be helpful to newbies.


Example: Buying and selling 14 days later


AFR (Broker)

Buy 500 shares @ £1.6275

Cash Outlay = £813.75

Sell 500 shares @ £1.6710

Gross Return = £835.50

Less

Stamp Duty @ 0.5% = £ 4.069
Commission @ £20 Round Turn = £20.00

Net Return = £810.93

You would have made a loss of = -£2.82


Note:

You would have tied up £827.81 during this 14 day period you owned the shares for.

You would have lost £0.9525 appx in potential interest assuming (3% per annum)

You may also be subject to Capital Gains Tax at your usual tax rate on any profits.







AFR (Bookmaker)

Buy @ £5 per point @ £1.630

Cash Outlay (Margin) = £57.00

Sell @ £5 per point @ £1.668 = £19.00

Less financing charge of 14 x £0.07 = £0.98

You would have made a profit of = £18.02


Note:

You would have tied up £57.00 as margin during this 14 day period you owned the shares for.

You would have lost £0.06 in potential interest assuming (3% per annum)

You would have gained £0.8925 in potential interest assuming (3% per annum)

Your gains are not subject to Capital Gains Tax

 

[malaguti]

Happy new year to everybody.

I am new to spreadbetting and have just completed my first trade. When i first started to research the pro's and con's of spreadbetting, I couldn't find many examples showing worked examples of the difference between spreadbetting and actual share dealing, so i thought I would share with you the intimate details of my first trade which may be helpful to newbies.


Example: Buying and selling 14 days later


AFR (Broker)

Buy 500 shares @ £1.6275

Cash Outlay = £813.75

Sell 500 shares @ £1.6710

Gross Return = £835.50

Less

Stamp Duty @ 0.5% = £ 4.069
Commission @ £20 Round Turn = £20.00

Net Return = £810.93

You would have made a loss of = -£2.82


Note:

You would have tied up £827.81 during this 14 day period you owned the shares for.

You would have lost £0.9525 appx in potential interest assuming (3% per annum)

You may also be subject to Capital Gains Tax at your usual tax rate on any profits.







AFR (Bookmaker)

Buy @ £5 per point @ £1.630

Cash Outlay (Margin) = £57.00

Sell @ £5 per point @ £1.668 = £19.00

Less financing charge of 14 x £0.07 = £0.98

You would have made a profit of = £18.02


Note:

You would have tied up £57.00 as margin during this 14 day period you owned the shares for.

You would have lost £0.06 in potential interest assuming (3% per annum)

You would have gained £0.8925 in potential interest assuming (3% per annum)

Your gains are not subject to Capital Gains Tax

a good post and yes you're right that it might seem as though spreadbetting is a better way to go..
just a couple of points though that might make a newbie not discount shares
capital gains doesn't come into account if its an iSA or you have made more than the tax threshold..somewhere around 18k
you can hold these shares as long as you like..(you can use futures of course, but then you increase the spread each time)
with regard to the spread, you have not mentioned that the broker buy price will likely be more than the price it costs to buy the shares..multiply that by 5 and the same for when you sell..now imagine you are buying 1000 shares and then your £20 is comparable
and lastly, that the cost of buying shares is as low as £5 for some brokers (iweb for example) and then you will begin to see that its actually saving you money by buying shares

but your post does highlight some issues that others will be facing

 

[the pro]

Hi Malaguti

Thanks for the feedback. Just checked out Iweb and as you say it looks like you can trade for £5. You do however have to pay £25 as a one-off account charge to open it.

In the example I gave I did allow for the difference in spreads as you can see.

In regard to Capital Gains Tax, I thought the limit was £10,000 these days, could be wrong though, obviously everybody’s situation will be different.

The other obvious difference is that you can go short with Spreadbetting.

Also bear in mind if you have a couple of mates interested in trading you can of course share the share dealing costs whereas with Spreadbetting there’s no way of reducing the cost’s unless someone knows better.

 

[malaguti]

Thanks for the feedback. Just checked out Iweb and as you say it looks like you can trade for £5. You do however have to pay £25 as a one-off account charge to open it.

I know, a good deal especially compared to the likes of Barclays at nearly £20/trade and then there's inactivity fees etc etc..worth shopping around. That was just the point I was making

In the example I gave I did allow for the difference in spreads as you can see.

My bad, yes you did. Not to argue with you, again Its just observations having been in the same position myself..if you intend to hold for some time, you are better off using a futures contract and I would argue that the buy price is going to be a damn sight more in which case like i say you are actually paying more than your share dealing cost

In regard to Capital Gains Tax, I thought the limit was £10,000 these days, could be wrong though, obviously everybody’s situation will be different.

yep, just under 11 this year, but my advice is the isa, completely tax free

The other obvious difference is that you can go short with Spreadbetting.

Indeed, the best benefit there is

Again, mate all good points. For me the main difference is 2 fold: longevity and amount you are holding
In my opinion holding anything less than 500 shares you will indeed lose out every time. You could hold a spreadbet trade for months before it starts to become uneconomical. However as soon as you get to 500 or more, AND you hold for months, you will be better off buying shares.
all im trying to say is don't discount it just yet..but good observations mate nonethless.

 

[the pro]

All good valid points.

My average winning trade lasts 14 days, which is one of the reasons I went down the Spreadbetting route.

Can you place limit orders and stop orders with Iweb?

Thanks for the feedback, always learning.

 

[malaguti]

All good valid points.

My average winning trade lasts 14 days, which is one of the reasons I went down the Spreadbetting route.

Can you place limit orders and stop orders with Iweb?

Thanks for the feedback, always learning.

I think you can. My wife uses them and its not a bad platform. as for 14 days average yes you may even qualify for a discount on the number of trades placed!
only kidding, thats a lot of volume

 

[Stargunner]

I recently began trading with iWeb, it's a very simplistic platform, but all I currently require is there, that being live quotes, fundamentals, basic charts which have all the main options.

That said I'm still interested in spread betting. However, I'm finding it hard to trust a spread betting provider. They essentially want you to lose, and that concerns me.

 

[luckystrike23]

http://www.spread-betting.com/spreadbetting/comparing-spread-betting-to-shares-trading

 

[the pro]

http://www.spread-betting.com/spreadbetting/comparing-spread-betting-to-shares-trading

Hi Luckystrike23

Thanks for the link, saved as a PDF doc, will have a look at that shortly. Probably a Spreadbetting bias, looking at where it is.

Anyway, thanks again, are you Spreadbetting yourself.

 

[timsk]

http://www.spread-betting.com/spreadbetting/comparing-spread-betting-to-shares-trading

The site linked to in luckystrike23's post above is good in many ways. However, somewhat alarmingly for a site devoted to all things spread betting, it refers to the practice as 'spread trading' - which isn't just misleading - it's plain wrong. For anyone subscribed to this thread who is unfamiliar with spread betting, be aware that it has absolutely nothing to do with spread trading or trading spreads, which is altogether different.
Tim.

 

[MORRIS2001]

The site linked to in luckystrike23's post above is good in many ways. However, somewhat alarmingly for a site devoted to all things spread betting, it refers to the practice as 'spread trading' - which isn't just misleading - it's plain wrong. For anyone subscribed to this thread who is unfamiliar with spread betting, be aware that it has absolutely nothing to do with spread trading or trading spreads, which is altogether different.
Tim.

It's a legacy from when one or two firms, including Cantors, tried to rebrand spread betting as spread trading for various reasons around 10 years ago.

The legacy has been continued by some as a marketing intent to cater for a key demographic of UK tax payers who do not wish to believe they are betting but trading instead.

Tim.

 

[timsk]

The legacy has been continued by some as a marketing intent to cater for a key demographic of UK tax payers who do not wish to believe they are betting but trading instead.

Hi Tim,
It's not often that someone replies to a post of mine who has been a member of T2W longer than me!


And yes, I'm sure you're right in what you say.
Tim.

 

[luckyhaa]

the pro,

How you compare spread betting with CFD as a small investor point of view?Which one more reliable if we holding position 10-15 days
I appreciate your response
Thanks