Here is an example, (dollar figures as I was talking about U.S. futures):
Say the trader either (a) pays tax at 40% and gets a r/t rate of $3.50 (typical figure) through a discount broker, or (b) pays 0% tax and a r/t rate of $20 with a spread betting firm (as in the above figures). For a trader not yet profitable, option (a) is clearly the better choice. For a trader who is profitable then he trades positions 67% larger under option (a) than he would under option (b) and he's still better off at the end of the year by $8.50 times the total number of lots traded in the year. Provided, of course, that trader has enough margin capital for this and doesn't start making a loss (which would then be 67% bigger). For 20% or 18% tax rates the position size ratio is lower.
Lets break this down as i dont believe size matters. more importantly how many points you ave per trade after losses
Lets use ym as a simple example with 1 contract. futuresbetting commission is $20 r/t vs $3.50 as in your example.
if you ave 10 points per trade (after losses) then you have made $50 per trade.
take away the commision from futuresbetting and u are left with $30.
if you were dma it would be $50 -$3.5 =$46.5 minus 40% CGT ($18.60) and you are left with $27.90.
Lets now say tht you are trading 10 contracts, futuresbetting commission is now $200 r/t vs $3.50.
10 pts per trade = $500 - commision leaves you with $300
dma $500 -$3.5 = $496.5 - CGT ($198.60)
lets look at what happens when you ave 20 points per trade, 1 contract to keep it simple.
20*5 = $100 minus comms $20 leaves $80 if with FB
$100 - $3.5 = $96.5 - CGT ($38.6) leaves $57.9
The above is a very crude example done for my benefit as much as everyone elses, other factors such as the 8k tax allowence and reducing tax further by offsetting profits against other costs will make the comparison more favourable for dma.
So how to decide which way to go. well lets say you have a system tht gives you a 50% win rate and a risk reward of of 1:2 profit is 20 points per trade loss is 10. this would give you an ave of 5 points per trade so i would say dma. even if your doing 40 points a winner 20 points a loser with a 50% this would only give you an ave of 10 points per trade. I would still favour dma at this point.
Any system generating better then 40 points per trade i would probably go with FB.
However heres where it gets confusing
the above is based on the assumption that you will be able to make the extra 4 points out of the market tht you would lose to fb if you were going dma. if you use set point targets/stoploss then the above is not so relevent as you are making the same no of points.
so if i make make 10 points with a spreadbetting account i've made $50 and thts the end of my costs as the commission is built into the spread.
However with Dma you still have to take out comms and tax.
