>1year SB on US Stock?

[Chev2010]

Been reading a lot about this recently and am wondering if I'm missing something fundamental!

Lets say I own 100 shares in AMZN and the current price is $700.00 a share, any profit made would be subject to CGT @33%.

If I sell those shares and put the 70k in a SB account and open a trade on a December AMZN Future (?) at $1/point I effectively have a position of $70k on the market with 0 leverage used. And any profit is now tax free.

I hold these for 3 years the shares won't cost me much and the rolling over of the SB will cost maybe 6%ish (3 quarter contracts pay a rollover of 0.4% with IG and their spread is 1%ish).

The volatility in both cases would result in the same fluctuations, risk would be the same if you don't put a Stop Loss on the SB.

Seems too simple, surely everyone would be doing this instead of buying and holding shares?

 

[remme001]

I'm not sure I fully understand your scenario but I thought I'd add some comments anyway.

Spreadbetting is free from capital gains tax as long as it's not your sole source of income.

I will also add that there are brokers out there that will allow you to allocate 100% margin and not pay any rollover fees. This will save you quite a bit of money if you intend to hold for years and not use any leverage.

Personally I like to mix it up a bit using low leverage and have the dividends fund the costs of the rollover fees. This won't work in your situation if you're hard pressed on trading AMZN which offers no dividend.

Why aren't more people doing this? Many have physical stock in a stockbroking ISA which is free from capital gains tax and only has buy/sell fees usually around £11 each way. This is very cost effective but it's capped at £15240 a year. Some would also argue that it's also safer as you are a true shareholder in the stocks you invest in (some like this fact) where as the situation is fuzzy if you have open positions and your spread bet broker goes bankrupt. I would mostly say that spread betting is simply less well known in comparison to standard stockbroking and if you asked a randomer off the street I'm sure many will know what stockbroking is whereas little will know what spreadbetting is let alone the advantages of it.

 

[new_trader]

Seems too simple, surely everyone would be doing this instead of buying and holding shares?

There is no counterparty risk when you own the physical shares.

 

[Chev2010]

Thanks all for the feedback, maybe I wasn't too clear so will quickly restate.

Assumptions to make this easier:
1) Lets say I want to invest $70k in AMZN
2) AMZN share price is $700
3) I intend to buy and hold for 3 years
4) Have no preference to hold shares over spread betting (or other solution)
5) I intend to put the full $70k directly into the SB account and not use margin (saves risk of margin call) and bet $1 per point (so same as holding $70k of shares)
6) I would not use a stop loss if I did the SB (again so it will behave just like a share)
7) Will buy the IG AMZN 3 quarter out future (not sure if this is the technical name). But there are NO daily funding charges as it's all built into the spread and can leave open till end of Dec or close early if I want

It seems I would pay about 6% in SB fees over the 3 years if I bet on the IG December AMZN future and roll it over 4 times (to give 3 years).

Assuming the share price increases all profit is then tax free.

The only down side is losing the 6% and the "counter party rixk" new_player mentioned.

Would counterparty risk be the same as a broker going bust? How likely is that with someone like IG?

This seems too simple, why would anyone hold shares if this was a tax free option - seems like I'm missing something fundamental here.
I certainly don't want to put my money into IG then find out too late what others have known a long time and lose a few thousand!!

Thanks again

 

[pigbear]

The reason traders are attracted to spread betting apart from tax free is you can get leveraged very easily. Your idea is sound but it would be like using a Ferrari to collect your groceries.

 

[remme001]

A major advantage I think that often gets overlooked which is applicable to trading foreign stocks on a spreadbet platform is that you aren't exposing yourself to currency fluctuations in comparison to owning the physical stock. I think this is more applicable to holding a spreadbet position long term but it's a big advantage in my opinion.

Say you trade US stocks a lot and for some reason wanted to use a standard share dealing account. Some brokers will allow you to open with a base currency as USD, this helps fix this issue a little but in a way it doesn't resolve it as your money is most likely transferred from GBP to USD when you deposit and then reversed when you withdraw. Unless you have US bank account and income that is USD. Even if this was the case the account would not likely be free from capital gains tax.

 

[pigbear]

Also did I forget to mention you can go short. So you could go short when Amazon reaches a high then close if it falls. Add to you main position when it reverses if you believe its a long term buy.