I attended a seminar recently on the subject of spread betting. The speaker was praising the benefits of spread betting especially the point that gains from spread betting are tax free (in the UK) and also the fact that when you buy shares you have to pay commission, stamp duty and finally tax on any profits you may have. If this is all true, which I believe it is, why do people still trade shares and why. Why doesn;t every one trade with financial spread betters.
Why trade shares
- Thread starter gifropan
- Start date
I think there's like a billion questions you could ask yourself in trading like: Should I follow a trend-following strategy, or contrarian, should I do directional trading or options combinations, or systems trading or discretionary trading?
I've read several books on interviews with traders and everyone seems to find something they're comfortable with. I've tested several methods up to now and I find sometimes when I think of a new idea and start testing it, I always see things when testing in real time I never would have anticipated. And my experiences over time have shaped my opinions on what I want to do.
You can read my post in this thread to see how my experiences have shaped my opinions:
http://www.elitetrader.com/vb/showthread.php?threadid=190029
I've read several books on interviews with traders and everyone seems to find something they're comfortable with. I've tested several methods up to now and I find sometimes when I think of a new idea and start testing it, I always see things when testing in real time I never would have anticipated. And my experiences over time have shaped my opinions on what I want to do.
You can read my post in this thread to see how my experiences have shaped my opinions:
http://www.elitetrader.com/vb/showthread.php?threadid=190029
1) The bets can be illiquid.
2) The bid-ask spreads can be "wide" or unavailable.
3) There is a very limited number of spread bets to trade.
4) The hours of trade can be limited.
5) The largest trade size is "puny" compared to stocks.
6) You may not have any type of legal or regulatory recourse if something "bad" happens to you while trading.
7) Outside of the U.K., everyone believes spread betting is for pikers.
8) That tax-exempt status could disappear if local government becomes desperate for tax revenue.
Assuming the question is serious...
If you trade frequently this hidden commission accumulates pretty fast.
Stamp duty is only applied to UK stocks.
Also search for "bucket shop" on these forums and on the Web. This will give you an idea of some issues one may encounter while doing financial spread-betting.
As long as these are not the main source of income for thw individual... In this respect, financial spread-betting is equated to gambling. Wins in poker are tax free but if you play poker for living you may hear from the taxman. This restriction is teh reason spread-betting isn't a good idea for those for whome trading is a career (unless they trade for a trading company and do a few long-term spread-bets on the side).
Spread-betting companies make up for "no commission" by adding spread on top of bid/ask. In other words spread-betting companies show market prices which are not the prices of the underlying shares but are made up and already incorporate commission (which is usually much higher than with leading discount brokers).
If you trade frequently this hidden commission accumulates pretty fast.
In this way you do avoid stamp duty... but so do those who trade CFDs via a broker. In the latter case they get as proper market price and commission, not price made up by the spread-betting company.
Stamp duty is only applied to UK stocks.
Also search for "bucket shop" on these forums and on the Web. This will give you an idea of some issues one may encounter while doing financial spread-betting.
I personally don't mind the concept of spread-betting.
What I don't like is the counter-party risk. Say if I put in a million dollar (if I won the lottery that is) into a spread-betting account, how do I know that they won't declare bankruptcy and run away with my money?
PA
What I don't like is the counter-party risk. Say if I put in a million dollar (if I won the lottery that is) into a spread-betting account, how do I know that they won't declare bankruptcy and run away with my money?
PA
Quote from nazzdack:
1) The bets can be illiquid.
2) The bid-ask spreads can be "wide" or unavailable.
3) There is a very limited number of spread bets to trade.
4) The hours of trade can be limited.
5) The largest trade size is "puny" compared to stocks.
6) You may not have any type of legal or regulatory recourse if something "bad" happens to you while trading.
7) Outside of the U.K., everyone believes spread betting is for pikers.
8) That tax-exempt status could disappear if local government becomes desperate for tax revenue.
Mostly not true
