Using Spread Betting to invest??

[cara2]

SB is regarded as "gambling" so tax free. Apparently 'they' could, but never have, chased anyone using it as a career.

While the Spy is running say 25%, you could bet eg (ignoring extra margin requirement) 20k on margin at 5:1

Your 100k becomes 125k in a year. With a swap rate a couple of % over base, say 7% (is that fair?), you gain 25-7 = 18k.

There's a spread in there, maybe some small costs... (I don't have a SB platform, I'm thinking of IG now Capital is shut) so it's approx

90% return in a year tax free, what am I missing?? Why is this not a standard strategy?

(Perhaps Options would make more sense, I don't know enough about them. )
25% may take a hit, but some bonds have beaten that.


I have this , but how viable is it? really?

 

[timsk]

90% return in a year tax free, what am I missing?? Why is this not a standard strategy?

Hi cara2,
It is a standard strategy for anyone who puts their money in an index tracker fund. It's all rosy so long as the index continues to move up which, in the long term, it pretty much has to. But, in any one year, there could be a correction (e.g the Covid outbreak) and the index tanks 25%, at which point you'll get a margin call from your broker and the know-it-alls on here like me will tell you that you were over leveraged and gambling!
😛

 

[cara2]

Thanks @timsk. I see it would only take a modest dip at 5:1. Is it possible to use SB at lower leverage? How about using SB with better tempered instruments. I need to dig, I'm being lazy and hoping someone has been round the loops.

Perhaps the future's orange, but I don't suppose it's on any SB platform. Do any have OEICS?

 

[ChelseaR]

Hi Cara2, I feel like your strategy looks good on paper but it could turn out to be very risky due to leverage and market volatility. Even if you’re getting tax-free returns, other fees like spreads, swaps, and if the market moves suddenly - slippages, can eat your profits. What risk management methods are you using?

 

[cara2]

Not with you @ChelseaR
Spreads - small on a long term position
Swaps - accounted for & queried
Volatility - is the position more threatened by volatility than simply putting 100k in the instrument unleveraged - no? Unless you use up your margin.
No slippage if you're just holding
RM - same as with a normal long term holding.

I don't see any of that is specific to SB, - other than the swap which is the subject essentially - is it?
What I don't know is if there's a difficult with a long SB [position other than the swap rate.

I use cfd every day. The leverage isn't really an issue. My swap rate is high so I don't hold overnight often, and it's taxed.

 

[Zweihander7]

SB is regarded as "gambling" so tax free. Apparently 'they' could, but never have, chased anyone using it as a career.

While the Spy is running say 25%, you could bet eg (ignoring extra margin requirement) 20k on margin at 5:1

Your 100k becomes 125k in a year. With a swap rate a couple of % over base, say 7% (is that fair?), you gain 25-7 = 18k.

There's a spread in there, maybe some small costs... (I don't have a SB platform, I'm thinking of IG now Capital is shut) so it's approx

90% return in a year tax free, what am I missing?? Why is this not a standard strategy?

(Perhaps Options would make more sense, I don't know enough about them. )
25% may take a hit, but some bonds have beaten that.


I have this , but how viable is it? really?
View attachment 338932

OP this is exactly what I do. I feel like it's the biggest secret in the stock market that nobody knows about.

I hold a net 2x leveraged position on my capital in the Nasdaq 100 long term using index futures spread betting. I only use index futures bc the financing costs are dirt cheap. The Nasdaq is currently trading at around 23,500 and the spread contract renews every quarter. IG typically adds an additional 250 point spread on the price to the underlying market at each renewal, so with spread bet at 20x leverage it works out an effective cost of financing for the whole year of 4.3% on your £1175 investment (1175 is 1/20th of 23500, and 250/20 * 4 = £50 cost of financing for the year). Being able to take 20x leverage and only having to pay 4.3% is INCREDIBLE!!

have been doing this for 5 years now and have been printing money bc I'm earning profits on the spread bet and also earning 4.5% interest on the remaing 95% of my capital in my savings account that doesn't have to be locked up in a position.

Ofc when dips happen you have to immediately fund the spread bet account to not get margin called, but that's just nature of the beast and this spread bet method is the most efficient way to invest bc it allows you to basically use the same £ in two different places at the same time.

 

[cara2]

Thanks, What am I missing - I can't follow all of your numbers? Maybe I misunderstand how things work.
I think you meant to type 20x leveraged, not 2x.

If you have a 23500 position do you not pay 4.5% on that, = 1010.5 on the year?
Are you balancing that against the 4.5% you can earn in the remaining 19/20ths of the price leaving you £50.525 cost? I'm not sure I'd look at it that way.

I get confused with pips applied to stocks. I see a spread of about $2.5 on 23k so an additional cost on the year of $2.50 per share. Is that what you mean?

The futures index is up 23% on the year so
your interest + spread is 1010.5 + 2.5 = 1013
and your gain is 0.23 x 23500 = 5405

Giving a return of approx 4400 on 1175 or 374% pa Yes? No?

It would have been hairy if you'd bought at the end of Feb. You'd have been £5000 under water at one point!

Pray to the God of Dips!

[edit - I am reminded I don't understand rolling spread bets - need to read up.]

 

[Zweihander7]

Thanks, What am I missing - I can't follow all of your numbers? Maybe I misunderstand how things work.
I think you meant to type 20x leveraged, not 2x.

If you have a 23500 position do you not pay 4.5% on that, = 1010.5 on the year?
Are you balancing that against the 4.5% you can earn in the remaining 19/20ths of the price leaving you £50.525 cost? I'm not sure I'd look at it that way.

I get confused with pips applied to stocks. I see a spread of about $2.5 on 23k so an additional cost on the year of $2.50 per share. Is that what you mean?

The futures index is up 23% on the year so
your interest + spread is 1010.5 + 2.5 = 1013
and your gain is 0.23 x 23500 = 5405

Giving a return of approx 4400 on 1175 or 374% pa Yes? No?

It would have been hairy if you'd bought at the end of Feb. You'd have been £5000 under water at one point!

Pray to the God of Dips!

[edit - I am reminded I don't understand rolling spread bets - need to read up.]

What you described is DFBs/CFDs. You cant use DFBs for long term investing, the overnight financing costs eventually destroy your returns. Index futures works differently to DFBs. There are no overnight financing costs for spread bet index futures, the costs are all in the spread you pay right at the start when you enter the contract. With CFDs the broker charges the interest rate on your total exposure, so if you bought £100k of stock they will charge you £100k x 4% pa = £4k, but with index futures they charge the 4% on the margin you post, so say you used 20x leverage your interest would be £100k/20 x 4% pa = £200. This £200 cost would be added to the price you pay right at the start (the contracts are 3 months long so you pay £50 each quarter)

My portfolio is 2x leveraged not 20x. What I meant is that say I have £1000 of capital, and IG offers an index future with 20x leverage, I take £100 of my money and buy index futures to give me £2k of exposure to the index (so overall I am 2x leveraged on my £1000), and then with the other £900 of my money i just keep in a bank account earning interest, and its there available when the market dips so to fund my spread bet account to not get margin called. The benefit of this approach is I am basically using the same money in two places at once - earning me interest in my bank account & then also earning me a return with my exposure to the index.

In terms of popularity of this approach you have to note that only 1% of the UK population even have a CFD/spread betting account and most of those people with accounts are just gamblers looking for a quick buck rather than long term focused.