Couple of Quick Questions

[vish4al]

HI All,

I am looking to start trading in the next 6 months or so, at the moment I am in a research phase where I am looking at various strategies. Getting ahead of myself a bit and looking into the execution side of things spread betting really got my attention. However have a couple of questions:
1) To start with I want to look into longer term trades not day trading. Really depends on how quickly the fundamentals of the trade changes. I have seen SB dealers have rolling contracts. These are quite appealing to me however how costly is it to say hold a rolling position in gold for 6 months? I guess what I'm asking is, is SB only for the short term trader, or can you take long(er) term positions with these perpetual rolling contracts? Also what's the daily settlement price of these rolling contacts?
2) Spread betting is tax free & if you have a GBP account you are taking on NO FX RISK, that is a HUGE advantage, just there. I am guessing that the broker will have to hedge their FX risk so the spreads might screw you but even then, with no CGT or FX Risk on a trade the spreads would have to be pretty big to completely screw you. So why don't Big Hedge funds or more of the finance industry use spread betting?

Cheers for any and all help!

 

[arabianights]

1) For a longer term position the SB companies will also offer futures (usually you'll have to pay a higher spread) - use these instead.
2) Sometimes they do (not spread betting) use instruments like this where the FX risk is stripped - google QUANTOs.

 

[vishal04]

Hey, cheers for that. following up on Q1 the only thing I don't like about that is that it will expire and I don't want to be "forced" out of the trade at expiry. How easy is it to roll to the next contract?

 

[BlackSwan_UK]

HI All,

I am looking to start trading in the next 6 months or so, at the moment I am in a research phase where I am looking at various strategies. Getting ahead of myself a bit and looking into the execution side of things spread betting really got my attention. However have a couple of questions:
1) To start with I want to look into longer term trades not day trading. Really depends on how quickly the fundamentals of the trade changes. I have seen SB dealers have rolling contracts. These are quite appealing to me however how costly is it to say hold a rolling position in gold for 6 months? I guess what I'm asking is, is SB only for the short term trader, or can you take long(er) term positions with these perpetual rolling contracts? Also what's the daily settlement price of these rolling contacts?
2) Spread betting is tax free & if you have a GBP account you are taking on NO FX RISK, that is a HUGE advantage, just there. I am guessing that the broker will have to hedge their FX risk so the spreads might screw you but even then, with no CGT or FX Risk on a trade the spreads would have to be pretty big to completely screw you. So why don't Big Hedge funds or more of the finance industry use spread betting?

Cheers for any and all help!

Hi there,

I just wanted to add, if you are actually thinking of putting on a short position on cash products (for example, single stocks or spot gold), you will normally receive good financing interest everyday when rolling happens. However, this depends on the LIBOR also. When LIBOR was 4%, some SB firms funding formula was LIBOR +/- 2%. In other words, had you been long, you'd have been paying 6% rolling interest, but had you been short, you'd receive 2% rolling interest. I know 2% is tiny, but if you deposit £10K and leverage it for a short position of, say £100K, that's some decent interest payment if you want to hold shorts for a long time.

 

[Phil Mibbutz]

You end up paying them for rolling a short position overnight now, so it's better to go for a future for holding anything more than a few days.