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

Luc.Chase

Member
84 3
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?
 
Last edited:

gle101

Veteren member
3,717 84
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

Legendary member
10,443 1,313
Gle you will earn dividends and interest in your sb account as well ...
 

gle101

Veteren member
3,717 84
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

Legendary member
8,144 1,227
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

Legendary member
10,443 1,313
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

Legendary member
10,443 1,313
"(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

Member
84 3
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

Legendary member
8,144 1,227
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

Member
84 3
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

Veteren member
3,717 84
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

Veteren member
3,717 84
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

Veteren member
3,717 84
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

Legendary member
8,144 1,227
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

Veteren member
3,717 84
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.
 
 
AdBlock Detected

We get it, advertisements are annoying!

But it's thanks to our sponsors that access to Trade2Win remains free for all. By viewing our ads you help us pay our bills, so please support the site and disable your AdBlocker.

I've Disabled AdBlock