Why newbies shouldn't start off with SpreadBetting

CHRISTO9HER

Active member
123 27
It is often said that spread betting is a good way for newbies to learn to trade. Here I present the argument that it is in fact not a good place for them to start and they are better off with accounts with brokers offering CFDs or direct access.

Ok, so we all know the problems that are inherent in spread betting. The price spikes, the profitable accounts being suspended, disputed trades etc. This thread is not really about discussing these things. We all know that they go on (to some extent) and there is no point in discussing it any more. This thread is about discussing for whom the benefits of spread betting outweigh the costs.

The main, (if not only) advantage of spread betting is that it is tax free. This is why people use it and is really the only reason that these companies exist. There really is no other advantage to spread betting other than this that cannot be offered by CFDs. (Please, if I am overlooking something here then point it out).

So really, everyone needs to ask themselves whether or not they are gaining enough of a tax advantage from spread betting to put up with the rubbish.

An example of someone who should use spread betting

You are a trader with a few years of experience and who knows that over the course of a year your strategy is likely to result in a decent profit. You know what is wrong with SB but also know how to minimise the effect that it has on your trading. You know not to leave your stops at round numbers so they can knock them out, you know that you cant use very short time frames with SB accounts or they will disable the account. You have access to prices of underlying instruments so that you can know roughly how good the prices that you are getting are.

In summary, you can quantify the tax advantage that you are receiving and are convinced that it outweighs the disadvantage (that you should also be able to quantify to some extent).

Why newbies shouldnt use SB

Firstly, ask yourself honestly, what tax would you be paying if you were using methods other than spread betting. You have to remember that you are unlikely to be profitable in the first year. In fact, if you break even, you have really done pretty well (assuming you were fairly active). The reality is that if newbies were using methods other than SB, they would get treated a whole lot better, would learn to trade using real market prices, and would still pay little or no tax. In fact, most would end up with a capital loss that they could use in the future once they are profitable.

You have a tax free allowance of £8k per year, USE IT. Lets say you have a great first year and make a 40% return on your account (trust me, this is a great first year).

Starting account Return Ending account Tax Bill
10k 40% £14k £0
20k 40% £28k £0
30k 40% £42k £720
40k 40% £56k £1440

NOTE: These calculations were done using 8k tax free allowance then flat rate of 18%

You see, its not much. And realistically a 40% return in year 1 is probably an upper bound. So to all you newbies, I urge you to think about whether you are getting enough advantage from the tax benefits of spread betting to justify using it.

If you end up paying a bit of tax.........CONGRATULATIONS.....enjoy it, you're doing well!!!
 

Splitlink

Legendary member
10,850 1,231
One point that you did not mention. Perhaps an item for a Newbies budget, perhaps not.

Brokers mean trading by contract. That means 10 GBP, dollars, whatever.

Start with a string of losses and the account will start to look sick.

I'm not making cases for one or the other, but watch your stake size and do your sums before opening accounts.

Split
 
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Hoggums

Senior member
2,176 877
Most beginners lose money not because of SBs so called tricks but because of their own inexperience and lack of trading knowledge. Looking for an excuse - simply not believing it could be their own ineptitude - they blame the SB and not themselves.

Put them on DMA or CFDs they will still lose money.


SBs allow you to start small, something you can't do with a DA account.
 

jpu1978

Junior member
17 0
Most beginners lose money not because of SBs so called tricks but because of their own inexperience and lack of trading knowledge. Looking for an excuse - simply not believing it could be their own ineptitude - they blame the SB and not themselves.

Put them on DMA or CFDs they will still lose money.


SBs allow you to start small, something you can't do with a DA account.
Totally agree.
 

marcopolomalta

Junior member
12 0
i consider myself new to trading although i have paper traded on and off for about 5 years. I cant open any accounts but spread betting ones simply because i lack the capital. commisions would eat any tiny profit i could make. that is why spread betting appealed to me. im currently putting away a bit of spare cash to start up. as i manage to save more money i will either increase my stakes on spread betting or move to another trading format if im not happy. spread betting has the scalability that i need to start with. i just need to manage my money well.
 

rmaskell

Newbie
9 0
I'm 3 months in and ONLY trading the direction of the FTSE via capitalspreads.com.
Not a big player, but given the recent swings I'm seeing some reasonable returns.
 

trader_dante

Veteren member
4,535 1,473
All I ever see is newbies complaining about price spikes and quotes that don't exist. Do any of these people actually realise what this means and what an advantage it offers them? It's so easy to just get done over, complain and give up isn't it? What you should be doing is working out how you can turn a problem into an opportunity. If people realised the money I've made from what they are complaining about...think outside the box. There is something valuable right before your eyes.
 

oiltanker

Established member
955 89
yes. Don Bradman was the greatest run getter of all time. Each ball no matter if it was bad or good he would be looking to make a run of it. its a different emotional skill and mindset.

sb is a great way to learn the markets with real money. with £1 pt you get the feel of the market with real money.
 

dick_dastardly

Established member
843 152
You are a trader with a few years of experience and who knows that over the course of a year your strategy is likely to result in a decent profit. You know what is wrong with SB but also know how to minimise the effect that it has on your trading. You know not to leave your stops at round numbers so they can knock them out, you know that you cant use very short time frames with SB accounts or they will disable the account. You have access to prices of underlying instruments so that you can know roughly how good the prices that you are getting are.
Hi CHRISTO9HER

May I ask, what in your opinion would you consider to be a very short time frame ?

a minute ? 5 mins ? 10 mins ? an hour ? a few hours ? a day ?


dd
 

Lee Shepherd

Senior member
2,164 570
i consider myself new to trading although i have paper traded on and off for about 5 years.:!: I cant open any accounts but spread betting ones simply because i lack the capital. commisions would eat any tiny profit i could make. :!:that is why spread betting appealed to me. im currently putting away a bit of spare cash to start up. as i manage to save more money i will either increase my stakes on spread betting or move to another trading format if im not happy. spread betting has the scalability that i need to start with. i just need to manage my money well.
Theres a flaw here that I've indicated with warning signals.

If commissions eat away at your tiny profits with direct access then spreadbetting spreads will only do the same, this is without (maybe but more likely) slower fills and prices that somehow sometimes dont accurately reflect the underlying market and (sometimes) not being able to trade in and out of positions when you'd like to.

Be aware, spreadbetting is good for leverage (but is a double edged sword) so you can start off small but if you can't make money through DA then you wont make it through SB, commissions or not.
 

gle101

Veteren member
3,717 84
i consider myself new to trading although i have paper traded on and off for about 5 years. I cant open any accounts but spread betting ones simply because i lack the capital. commisions would eat any tiny profit i could make. that is why spread betting appealed to me. im currently putting away a bit of spare cash to start up. as i manage to save more money i will either increase my stakes on spread betting or move to another trading format if im not happy. spread betting has the scalability that i need to start with. i just need to manage my money well.
Yes I agree, the problem with DMA is, you have to put up more money to get started. This is not a good thing if you are a newbie. Lets say you want to trade the FTSE (Z future), it would be just too risky for an unexperienced trader. I would absolutely not recommend DMA for a newbie, you are are far better of initially trading with SB. You can increase your stakes alongside as your experience grows. If you can't make it with SB there is no use hoping DMA will safe you. When you feel ready, you can jump on the DMA train, if you think that will give you an advantage.
 
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