What is it exactly about a Spreadbet that makes it into a Spreadbet

[Luc.Chase]

What is it exactly ( structurally, technically and legally ) about a Spread Bet that makes it into a Spreadbet??

What is the legal difference, from the broker's point of view, between say a CFD and a Spreadbet?

I know there is an explicit fee, and capital gains tax for a CFD and an extra spread for a Spread Bet; but is that really the only legal difference??

What is it exactly that a broker must comply with to call their service Spread Betting?

 

[gle101]

What is it exactly ( structurally, technically and legally ) about a Spread Bet that makes it into a Spreadbet??

What is the legal difference, from the broker's point of view, between say a CFD and a Spreadbet?

I know there is an explicit fee, and capital gains tax for a CFD and an extra spread for a Spread Bet; but is that really the only legal difference??

What is it exactly that a broker must comply with to call their service Spread Betting?

Legally in the UK SB financial is by definition gambling, and are not regarded as a financial instrument. It has already been taxed once in the UK by the tax authorities, they don't like to "double" tax it. Although in the rest of Europa, like some countries as Sweden, SB financial bets are regarded as financial instruments, despite the fact it already been tax properly in the UK. Apparently the rest of Europe seems to be following the same path, SB bets should be taxed and regarded as financial instruments.

CFDs on the other side are already regarded as financial instrument and winnings are as such taxable. Also in same cases you can collect dividends on CFDS which you can't on SB.

 

[tar]

Gle you will earn dividends and interest in your sb account as well ...

 

[gle101]

Gle you will earn dividends and interest in your sb account as well ...

Tar, please elaborate as I don't see how you can get for example a stock dividend on SB? About interest, Oanda can give after applying interest on the account money, but they offer only CFDs.

 

[tomorton]

If you have a long SB position in a share that goes ex-dividend, the SB firm makes a credit payment into your account proportionate to your position.

If you hold a short SB position overnight, you may receive credit for this too, though the calculation of this varies with the type of instrument - share, forex etc.

 

[tar]

Tar, please elaborate as I don't see how you can get for example a stock dividend on SB? About interest, Oanda can give after applying interest on the account money, but they offer only CFDs.

IG and CS ... etc pay/charge dividends on your stocks bets , if they don't charge you on your stocks shorts then shorting the stock before the ex-dividend date would be free money . They pay 80-90% of the dividend if you were long and charge you 100% if you were short . Same goes for indices bets and interest ...

http://www.ig.com/uk/indices-bet-details

 

[tar]

"(ii) A dividend adjustment is applied to take account of the ex-dividend adjustment to the index. This is the number of points by which the index price must be adjusted downwards to take account of those shares in the index which go ex-dividend at the close of the cash market. We will use the ex-dividend figure estimated by Bloomberg (E&OE), rounded to the tick size we use for that index, to determine what adjustment to apply. In the case of long positions, the dividend adjustment is credited to the client's account. In the case of short positions, the dividend adjustment is debited from the client's account."

 

[Luc.Chase]

Legally in the UK SB financial is by definition gambling, and are not regarded as a financial instrument. It has already been taxed once in the UK by the tax authorities, they don't like to "double" tax it. Although in the rest of Europa, like some countries as Sweden, SB financial bets are regarded as financial instruments, despite the fact it already been tax properly in the UK. Apparently the rest of Europe seems to be following the same path, SB bets should be taxed and regarded as financial instruments.

CFDs on the other side are already regarded as financial instrument and winnings are as such taxable. Also in same cases you can collect dividends on CFDS which you can't on SB.

OK, but I'm not clear on exactly what transforms a financial instrument into a Spread-bet.

 

[tomorton]

A spread bet isn't a financial instrument as such. Its a private wager between you and the SB company.

The arrangement is they will pay you if you select the correct direction of a financial instrument's price movement, in proportion to the amount you wager with them and the extent of movement in that direction. Sometimes its time-limited. The SB cannot be bought by or sold to a third party, it is not part of the market that the quoted SB price is based on. The market or entity underlying the bet, such as a listed company, is not a party to the wager.

 

[Luc.Chase]

A spread bet isn't a financial instrument as such. Its a private wager between you and the SB company.

The arrangement is they will pay you if you select the correct direction of a financial instrument's price movement, in proportion to the amount you wager with them and the extent of movement in that direction. Sometimes its time-limited. The SB cannot be bought by or sold to a third party, it is not part of the market that the quoted SB price is based on. The market or entity underlying the bet, such as a listed company, is not a party to the wager.

OK, and so unless the SB firm can place an equal and opposite bet on the open market (and often they can't since a SB customer generally bets too small), they are taking a risk (usually mitigated by opposite positions held by other SB customers). In all, their net risk should always be less than one full lot size (the remainder bit they can't hedge). But if ( like some "DMA" SB firms ) they only allow full-sized lots, they can take an equal and opposite position, then their net risk is very small (the risk that their customer will not pay a large loss). And that would still be a spread-bet, correct?
In a way, it is the SB firm that is doing the betting, if they can't hedge your position.

 

[gle101]

IG and CS ... etc pay/charge dividends on your stocks bets , if they don't charge you on your stocks shorts then shorting the stock before the ex-dividend date would be free money . They pay 80-90% of the dividend if you were long and charge you 100% if you were short . Same goes for indices bets and interest ...

http://www.ig.com/uk/indices-bet-details

Thanks a lot, I wasn't aware that they made adjustment as such, this especially as I never trade stocks on SB.

 

[gle101]

A spread bet isn't a financial instrument as such. Its a private wager between you and the SB company.

The arrangement is they will pay you if you select the correct direction of a financial instrument's price movement, in proportion to the amount you wager with them and the extent of movement in that direction. Sometimes its time-limited. The SB cannot be bought by or sold to a third party, it is not part of the market that the quoted SB price is based on. The market or entity underlying the bet, such as a listed company, is not a party to the wager.

It actually depends on you locality, in Sweden the tax authorities tax SB bets as derivatives and regard them as such, so in fact there is no use trading SB anymore.The same goes for other big countries in the EU. UK will pretty much soon stand alone in defending financial spread bets as being a part of the gambling industry and such being tax free.

 

[gle101]

OK, but I'm not clear on exactly what transforms a financial instrument into a Spread-bet.

I guess the fact that in the UK SB is not regarded as being a financial instrument, it is like sport bets but for financial markets, which is within the realm of the gambling industry. Also legally you might be more protected owning a CFDs instrument instead of a spread bet.

 

[tomorton]

It actually depends on you locality, in Sweden the tax authorities tax SB bets as derivatives and regard them as such, so in fact there is no use trading SB anymore.The same goes for other big countries in the EU. UK will pretty much soon stand alone in defending financial spread bets as being a part of the gambling industry and such being tax free.

Happy with that.

 

[gle101]

Happy with that.

If I could have had a choice between the two, it would of course have been better. On the other hand I don't see a future for SB, there is too much uncertainty regarding the legal part of the instrument (non-instrument). There are quite a few that just wished they had CFDs on the Swiss currency move. They would have from a legal point of view have a much better standpoint. Also it goes with the CFDs instrument itself, the ones that made huge losses could at least tax deduct some of the losses.

 

[tar]

Thanks a lot, I wasn't aware that they made adjustment as such, this especially as I never trade stocks on SB.

Thats applicable to indices bets as well ...

 

[tar]

OK, and so unless the SB firm can place an equal and opposite bet on the open market (and often they can't since a SB customer generally bets too small), they are taking a risk (usually mitigated by opposite positions held by other SB customers). In all, their net risk should always be less than one full lot size (the remainder bit they can't hedge). But if ( like some "DMA" SB firms ) they only allow full-sized lots, they can take an equal and opposite position, then their net risk is very small (the risk that their customer will not pay a large loss). And that would still be a spread-bet, correct?
In a way, it is the SB firm that is doing the betting, if they can't hedge your position.

Dont concern yourself about this , they hedge market risk at certain thresholds , for example lets say they are comfortable being long/short $ up to $10 millions , if at certain point their clients are long/short $12 m the broker will hedge $2m ( i read that in IG annual reports ) .

So the broker is taking directional bets in the market , they are market makers after all , interestingly although most their clients lose money and they earn the bid-ask spread instead of paying the spread , the broker hardly make more than the bid-ask spread ( based on CMC markets annual earnings divided by transactions volume ) . You would wonder what chance we got !

 

[Luc.Chase]

interestingly although most their clients lose money and they earn the bid-ask spread instead of paying the spread , the broker hardly make more than the bid-ask spread ( based on CMC markets annual earnings divided by transactions volume )

That is interesting... it implies that they are not on the other side of our trades. Other traders are. Either in-house or on open market.

 

[tar]

That is interesting... it implies that they are not on the other side of our trades. Other traders are. Either in-house or on open market.

Not necessarily , it could mean that profitable clients accounts are bigger , technically if you lose you will run out of money at some point and if you are winning your account will grow and grow ...

 

[Luc.Chase]

Not necessarily , it could mean that profitable clients accounts are bigger , technically if you lose you will run out of money at some point and if you are winning your account will grow and grow ...

Interesting too... one CAN win long-term in spread-betting.