UK Spreadbet firms to be investigated by the FCA

[wintergasp]

? Spreadbetting is tax free in lots of Europe, any trader would use a spread betting company to avoid tax. If it wern't tax free then they would lose a tonne of clients.

Spreadbetting is only tax free if it is not your main activity. Otherwise you pay capital gain taxes. If you make a lot of money out of it.... then likely it is your primary activity.

Also, if you have a job but the main source of income is trading from spreadbetting, they will consider it as your main activity, regardless of what your employment status is (e.g. your job paid 100k£ but you made 250k£ spreadbetting).

The only reason why it's tax free if it's not your main activity is because 90% of the people who trade CFDs without being a professional (e.g. it being their main activity) lose all their account. So the government would never get any tax out of it, whereas spreadbetting companies pay flat fees for the status.

Anyone serious about making money on the market will structure a corporation typically in the Cayman, pay taxes on its yearly income and accumulate the rest tax free.

 

[southall]

Spreadbetting is only tax free if it is not your main activity. Otherwise you pay capital gain taxes. If you make a lot of money out of it.... then likely it is your primary activity.

Also, if you have a job but the main source of income is trading from spreadbetting, they will consider it as your main activity, regardless of what your employment status is (e.g. your job paid 100k£ but you made 250k£ spreadbetting).
.

Not this myth again. It refuses die.
Spread betting is nearly always tax free (there are few situations when it might not be, like if you use spread bets to hedge real futures or stocks positions).

How much you earn in your day job has nothing to do with anything.
What you are saying is someone earning a £500K a year in their job and making £250K a year spreadbetting would not be taxed. But some one earning £100K a year and making £250K a year spread betting would be taxed.
Don't you realise how absurd that is? HMRC could try it on but any Court or tax tribunal would throw the case out real quick.

 

[Xela]

Not this myth again. It refuses die.

It absolutely refuses to die.

Even after (finally!) some definitive case-law/precedent on the point.

I've seen in UK trading forums exactly the same discussions/arguments from as long as 15 years ago (i.e. before the cases).

Of course, "whether or not it's your sole income" is not what the potential tax liability depends on.

It depends on "whether or not it's part of a trading-related business which involves being a vendor of products/services to traders".

The only people in the UK who have ever had to pay either income tax or capital gains tax on spreadbetting income were trading service vendors whose spreadbetting income was deemed by the court to be "part of a broader, commercial, trading-based business."

What you are saying is someone earning a £500K a year in their job and making £250K a year spreadbetting would not be taxed. But some one earning £100K a year and making £250K a year spread betting would be taxed. Don't you realise how absurd that is

Indeed ... exactly so. It's total nonsense. But the myth just will not go away.

 

[Visaria]

No, this is false.

I know this because I worked as a liquidity provider / market maker and dealth with CFDs and OTC providers directly.

They may hedge some using futures but unlikely in 90% of the cases.

The smart ones hedge excess risk using OTC products from investment banks. The not-so- smart ones don't and probably go bust ...Worldspreads comes to mind.

 

[Visaria]

You've made money from them for 20 years and never figured out you could trade the equivalent on regulated exchange-listed venues such as futures ? ... waouw

What you say is completely wrong. CFDs providers can have automated stop hunters because a CFD is a proprietary OTC product.

Futures brokers can't because they root your order to the exchange.

I doubt either you or your friend has ever made money.

Spread betting is highly regulated as it is, no need for any further regulation imo.

There are a couple of reasons why I would use a futures broker rather than a spreadbet firm. If i was to day trade or speculate for small moves, then using the underlying market is better due to the cost element. Spreadbets are far more expensive to use..for example the cheapest SB firm I know of charges 1.5 ticks roundtrip (plus underlying market bid offer spread) to trade a contract of CL compared to less than 0.5 ticks roundtrip (plus underlying market bid offer spread) that Interactive Brokers charge.

The other reason is if you wish to build a track record, perhaps to manage money then spreadbets don't really count. Of course, if you already manage OPM officially then you have to use the exchanges, you can't spreadbet your clients's money!

With regards to stop hunting, CFDs/spreadbets are based on the underlying market. Is a spreadbet firm really going to try move the ES futures or the CL futures market a few points to stop a load of pikers out???

 

[wintergasp]

Spread betting is highly regulated as it is, no need for any further regulation imo.

There are a couple of reasons why I would use a futures broker rather than a spreadbet firm. If i was to day trade or speculate for small moves, then using the underlying market is better due to the cost element. Spreadbets are far more expensive to use..for example the cheapest SB firm I know of charges 1.5 ticks roundtrip (plus underlying market bid offer spread) to trade a contract of CL compared to less than 0.5 ticks roundtrip (plus underlying market bid offer spread) that Interactive Brokers charge.

The other reason is if you wish to build a track record, perhaps to manage money then spreadbets don't really count. Of course, if you already manage OPM officially then you have to use the exchanges, you can't spreadbet your clients's money!

With regards to stop hunting, CFDs/spreadbets are based on the underlying market. Is a spreadbet firm really going to try move the ES futures or the CL futures market a few points to stop a load of pikers out???

If you read the Terms of Services, you see that they can quote you whatever they want, they don't need to keep it connected to the underlying future.

 

[wintergasp]

Not this myth again. It refuses die.
Spread betting is nearly always tax free (there are few situations when it might not be, like if you use spread bets to hedge real futures or stocks positions).

How much you earn in your day job has nothing to do with anything.
What you are saying is someone earning a £500K a year in their job and making £250K a year spreadbetting would not be taxed. But some one earning £100K a year and making £250K a year spread betting would be taxed.
Don't you realise how absurd that is? HMRC could try it on but any Court or tax tribunal would throw the case out real quick.

Any source of what you say on HMRC's website ?

 

[Visaria]

If you read the Terms of Services, you see that they can quote you whatever they want, they don't need to keep it connected to the underlying future.

If they quoted anything they wanted, i would arb the crap out of them.

 

[wintergasp]

The smart ones hedge excess risk using OTC products from investment banks. The not-so- smart ones don't and probably go bust ...Worldspreads comes to mind.

If you hedge 100%, your marketing cost is way above your brokerage commissions. In Europe you have to count 1,000£ in marketing expenses to open an account and an account is on average 4,000£ in funding.

Usually you are tagged with a color-code, you start by not being hedged and if you actually make p&l, you're hedged. They delta-hedge your trading. I haven't been involved with this crap for a year and a half now but I doubt it changed.

 

[Visaria]

They hedge their overall NET exposure. They are not going to start hedging each client's individual positions!

As for your figure of £4k average client funding, that's laughable. More likely less than a grand.