New Tax on All Stock Trades

[volpunter]

Are you saying turnover in HK shares is low because of the stamp tax? That is ridiculous, given the stamp tax has existed for a very long time and during that time HK has seen record volume equity trading turnover and lackluster turnover as well.

And you seriously compare HK stock trading turnover, as part of a 7 million people city with turnover in Japan? That HK absorbs Mainland trading volume is true in a very limited sense, given Mainland China has its own exchanges and a relatively small amount of mainland money currently trades HK listed H-shares via the recently released "through train".

Let's stick to facts and let's not play word twist games no matter you take issue with me or not.

About HK market beeing popular with active traders :

"To support its unsuccessful attempt to list in Hong Kong, Chinese internet retail giant Alibaba argued that the city's share of Asian stock market trading was in severe decline.

A high-profile initial public offering from a big technology company, insisted Alibaba executives, was just what the Hong Kong stock exchange needed to revitalise its flagging market.

It is true that trading activity in Hong Kong-listed shares is relatively limp by regional standards.

In the first nine months of this year, Hong Kong's average market velocity - the value of shares traded each month as a proportion of total market capitalisation - was just 44 per cent.

As the first chart shows, that's the lowest among East Asia's major stock markets. In contrast, Japan's market velocity is almost four times as great at a blistering 161 per cent."

http://www.scmp.com/business/bankin...ong-should-scrap-its-stamp-duty-share-trading

 

[volpunter]

Really? Lol, I mean given that 90% -95% of day traders lose money worldwide, with or without stamp duty, HK day traders, who are subject to the HK stock transaction tax, on average do not seem to perform worse than their US brethren. You can of course pull up statistics from US based brokers and their reported accounts that make money vs losing accounts and compare that with those in Hong Kong, but hey, you seem to be a fast talker rather than valuing facts and statistics.

"There are tons of "day traders" and there are tons of professional hedge fund prop traders in Hong Kong alone."
do the numbers and stop your anecdotes. they are meaningless. those traders you mention in
hongkong , if they exist are the equivalent of day traders and it is impossible mathematically
to be succesful but the people you claim to know are all outliers, no doubt.

 

[volpunter]

Would you mind to elaborate on your statements? I value your usual thought process but do not seem to reconcile this statement of yours. First of all, as already mentioned, CFDs FULLY reflect stamp tax via the CFD pricing [in the same way than shorting a share CFD has the underlying stock borrow costs reflected in the pricing of the CFD]. That is not my opinion but a sheer fact. So anyone who trades CFDs pays a fat spread and hence pays stamp tax in jurisdictions where it is assessed. Secondly, your first sentence would obviously need to be clarified. Who is everyone? Apparently LSE trades quite a lot of volume relative to all European bourses, and not all of that volume is absorbed by pension funds or long-only long-term holders. It comes down to a business scenario that has to be drawn up. Sure, someone aiming to extract 20-40 basis points may find it impossible to survive given a 20basis point tax on the transaction, but someone aiming for a 1% intraday move on higher beta names may pay the tax and take it as an additional cost of doing business. Sure, returns will always be higher without such tax. But I am saying a case can be made to ensure a profitable operation even taking into account the assessment of such levy.

Everyone in UK trades CFDs which for the retail investor is the same as trading stocks, no stamp tax and from what I understand, cap gains tax free.

 

[volpunter]

Exactly, not everything is bad with Republicans in power in the houses. Weapon sales will always be brisk and those who are smart enough to invest a large portion of their wealth in equity will be rewarded long-term (actually that applies regardless of who is in power ;-)
But yes, I agree, this tax will not come given the current distribution of real power.

Zero percent chance something like this can take hold with Republicans in control of both houses.

The time to worry would be if Elizabeth Warren were to win the Presidency and the Senate flipped to the Dems in 2016.

As of now, I don't think it's even remotely likely, but certainly worth speaking out against since that can't hurt anything.

 

[luisHK]

C) any costs if hedging and therefore any future or already existing transaction costs are fully priced into CFDs. How else do you reckon the houses to hedge their exposure? So saying CFDS are a way around us ludicrous. It reflects you don't understand the basics of CFD pricing.

Priced into CFDs ? Share CFDs prices, with dma, are the same as the underlying. The broker, which is exempted from transaction taxes, puts the order in the equity market, and passes to the Customer the corresponding position in CFDs, with the same execution price, while marking up its commission costs.
Share cfds are definetly a way around the TT and are largely used as such.

 

[luisHK]

That is not my opinion but a sheer fact. So anyone who trades CFDs pays a fat spread and hence pays stamp tax in jurisdictions where it is assessed. .

Fat spread ? Sheer fact ? And we are the ones who don't understand cfds ?

 

[volpunter]

"Traditionally, equity based CFDs are subject to a commission that is a percentage of the size of the position for each trade. Alternatively, a trader can opt to trade with a market maker, foregoing commissions at the expense of a larger bid/offer spread on the instrument."

=>

You either pay a commission or a wider bid/offer spread. Secondly are you denying there is any financing charge applied to CFDs? Thirdly, many CFDs are traded over the counter, OTC. That means the pricing of the CFD hugely differs from the pricing of the underlying. That in turns means brokers OTC can pretty much apply a commission level/spread of their liking. Even DMA CFD trading only works in markets where the underlying can be easily bought/sold in the market at the same time the DMA order is submitted. That pretty much applies to very few markets, all markets with short-sell rules, for example, are excluded which are most equity markets. Are you sure you want to discuss this in detail?

Fat spread ? Sheer fact ? And we are the ones who don't understand cfds ?

 

[luisHK]

That's what I posted first :

"I suspect most funds do the same calculation I do. They try to anticipate their holding period, commissions and interests and trade dma CFDs rather than underlying stocks if it's cheaper or other untaxed dérivatives.
UK and french transaction tax is a Bonanza for the brokers btw, who make much more money on those than on equities (if their customers trade large lots at least or have enough cash available not to buy on margin"

I'm a fan neither of stamp tax nor cfds

IB offers DMA, I don't think many big traders or firms go through otc marked up share cfds to avoid the transaction taxes.

You can compare below the financing charges on CFDs with IB and margin rates, quite close, the problem is you have to pay from the 1st usd. The more margin you use, and the shorter you hold your positions, the least it impacts. It seems a very good solution for day traders in UK

https://www.interactivebrokers.com.hk/en/index.php?f=interest&p=schedule2

https://www.interactivebrokers.com.hk/en/index.php?f=interest&p=schedule2

I don't like the CFDs commission because there is a max commission (every 100k euros or so on shares plus rebates, hence when trading big lots (moc usually ) I sometimes pay several times more in commissions with CFDs than with shares). I would trade much more european stocks with lower commissions. Also the fact one has to trade CFDs or stocks depending on the european market and attached transaction tax makes it harder to reach a higher volume tier (IB calculates separately european stock and CFDs trades), which again increases commissions.
IB actually advertises cheaper commission with CFDs than with shares, which is true on small lots.

As of how their dma works, the price is the same as the underlying :

http://ibkb.interactivebrokers.com/article/1912

As of UK stamp tax, it's 0.5%, not 0.2, which make CFDs an even better alternative to stocks for short term trades.

 

[luisHK]

"Traditionally, equity based CFDs are sujet to a commission that is a percentage of the size of the position for each trade.

What kind of argument in favour of shares is that anyway ?
Euro stocks are also "sujet to a commission that is a percentage of the size of the position for each trade "

UKstocks as well, with IB at least

 

[luisHK]

[QUOTE="volpunter, post: 4108839, member: 481655. Even DMA CFD trading only works in markets where the underlying can be easily bought/sold in the market at the same time the DMA order is submitted. That pretty much applies to very few markets, all markets with short-sell rules, for example, are excluded which are most equity markets. Are you sure you want to discuss this in detail?[/QUOTE]

With DMA the order is transmitted on the underlying order book and the customer is filled with CFDs only after the order is filled on the underlying. It doesn't matter if the order rests a long time.
Shorting works pretty well on UK and french markets, which were the ones mentionned here where to use CFDs rather than shares.
But if one can't short (can't borrow shares for instance) the underlying with IB, he probably won't be able to short CFDs