Lower trading costs

[anley]

Also, are you actually receiving interest on cash balances (held within your account). Some SB companies have the gall not to pass it on to their clients.

Nice racket..........

 

[the blades]

Never a right or wrong answer but those who know how to do the workings and realise the workings are important stand the best chance.

Agreed, and that's the long and short of it.

BUT, for all the above debates, I haven't added my overiding reason for using SB - the fact that the tax saved (for me) is greater than all the costs discussed. For some, this isn't debatable.

All the best,
UTB

 

[anley]

Yes, that is the long and short of it.

You've got to take both together, the tax situation and cost situation. Of course the equation really changes when/if one doesn't make money over a given time-period, say a tax-year.

 

[frugi]

I must admit you have to be clever to SB the Dow as a daytrader and do better than DA, which is why I don't. Ten points to Anley. If these calcs are right DA comes out ahead. However for longer term trades I'd still go for SB, assuming it wasn't taxed.

I've also used a a 4 pip spread as that is what steal4free quote for Dow cash. If it were 3 the calcs would be a lot different, but I can't be bothered to do them all again to see!

Two traders trading Dow future thru direct access / Dow cash thru SB.
They both make 3 round trips per day.
No overnights.

Assume 2$ / 1£
DA $5 p/pt per contract = £2.50 p/pt per "contract" SB

Commission cost per r/t: $4.12 = £2.06 DA / zero SB
Spread cost per r/t 1 pips DA / 4 pips SB = £2.50 DA / £10 SB

Both traders average 25 pips per day from 3 r/ts from mid price
They both trade 3 contracts per round trip

DA 25 pips = £62.50 * 3 = £187.50
- £6.18 commission * 3 = £18.54 (3 r/ts)
- 3 pips spread cost = £7.50 * 3 = £22.50

Total £48.91 * 3 = £146.46 profit per day

SB Dow 25 pips = £62.50 * 3 = £187.50
-0 commission
- 12 pips spread cost = £30 * 3 = £90

Total £32.50 * 3 = £97.50 profit per day

Assume 5 days a week, 45 weeks per yr

£11004.75 * 3 = £32953.50 YM pa
£7312.50 * 3 = £21937.50 SB pa (tax/NI free)

DA is taxed and subject to NI if u are self employed trader

£32953.59 - £4615 personal allowance = £28338.50 taxable
Tax = 10% on first 1960 = £196
and 22% on 26378.50 = £5803.27

£22339.23 after tax + £4615 = £26954.23 after tax DA

NI: Class 2 £2.06 pw = £107.12
NI: Class 4 8% of gross profit - 4615 = £2267.06

£24580.05 net DA
£21937.50 net SB

This assumes no other income and SB remaining tax free despite this.

 

[anley]

Good post frugi, this is just the kind of workings people should be doing, otherwise you fall into the trap of falling for the glossy marketing brochures.........

 

[Roberto]

Glad I've been offline for a few hours ... couldn't have picked a better time, by the look of it!

I don't for a moment pretend that I could have contributed anything like as much to the thread as those who have posted. I know also, and can see, Anley, that you (and others, I'm sure) have learned something from the answers TheBlades kindly provided to the questions you'd asked me in my absence. Much more so than if I'd answered myself, not only because his answers were better than mine would have been but also because he will doubtless have irritated you far less than I would have done, which was also doubtless a good thing all round.

Never a right or wrong answer but those who know how to do the workings and realise the workings are important stand the best chance.

We can all agree with that, Anley: well said.

Of course one cannot discount SB over say Exchange based products

Please excuse me ... I'm hallucinating. I thought for one crazy, psychedelic moment that Anley said "Of course one cannot discount SB over say Exchange based products"!!

Of course one cannot discount SB over say Exchange based products but if you look at one person's trading style over another then 1 product might be far better suited than another. For example as a general rule the more short term you are the more important it is to deal on products that have the tightest bid offer spread. But if you're long term and hold for many months then the importance of the cost of doing business is far less relevant. That's my point and so I'm always surprised that people like Roberto and Mich attack me for stating this critical point.

Far from having attacked you for stating that, Anley, I entirely agree with it, and have never said, or implied, otherwise.

What I've "attacked" you for are the persistent factual inaccuracies in your posts, on which I and other people have repeatedly corrected you.

SB is obviously not the cheapest method for every scenario.

Indeed. As I pointed out a couple of days ago, and as the ever moderate Frugi has now explained far more convincingly and realistically, it's hard to believe that it could be an appropriate choice for daytrading the Dow. But there are clearly _many_ forms of trading for which it _is_ ideally suited, including some of those used by people making a good, successful and steady living as traders. Trying to deny that by repeatedly using out-of-date information and inaccurate argument is both futile and misleading.

I haven't added my overiding reason for using SB - the fact that the tax saved (for me) is greater than all the costs discussed. For some, this isn't debatable.

Yes, that is the long and short of it.

Yes indeed; we all agree about that. Common ground has been discovered (and emphatically declared!).

The truth is that you impress nobody by coming out with "I don't trade spread bet FTSE but I think the spread is around 5 points" or "if you make DOUBLE the gross and use SB then you'll still be a loser, but of course they're still tax-free and you pay no commissions, hahahaha!", not only because it's simply untrue, but also because it reveals your unfortunate propensity to ridicule something that (understandably, through self-admitted inexperience) you really don't quite understand.

The other thing to note about DA is that you get access to trading software that is 10x better than what you get with the web based systems the SB companies offer.

I'm sure you're right, if you say so. I must admit that I've actually never looked at any chart provided by any SB company. I find my subscription to ProRealTime, which is all I need, so cheap and reliable that I've never thought about it (although actually I understand from second-hand information at another site that a couple of the SB firms are now supplying a variation of PRT charts, so I must look into it before I renew my subscription!).

But obviously you have a point here. Just as I'm sure you'd be happy to concede that David Michaelson (who I also hope will respond to your questions next time he logs on, whenever that may be!) makes good points mentioning that SB carries some other benefits, including considerably better regulation, safety and security of funds than (for example) many of the retail forex bucketshops. For many people, including me, these are actually very relevant and significant factors in a sometimes quite complicated equation.

 

[dr_d_michaelson]

Answering Anley's questions

1) Why have the professionals only just realised the advantages of spread betting when SB has been around and well established for over 15 years?

Firstly, you're wrong: it hasn't been "well established" for over 15 years - that has been much more recent. Secondly, most of the professionals have NOT only just realised the advantages of spread betting. That wasn't what I said - you have misquoted me. Thirdly, they are still increasingly discovering the benefits of SB now because some of those benefits (e.g. enormously improved customer service and its resultant fiduciary confidence) are pretty new, however long SB has been around for. Fourthly, some of the old-fashioned traders have been slow to learn some of the advantages but are making the move as and when they realise that the spread on the FTSE-100 is 2 points rather than 6 as they've wrongly imagined for so long. All the big SB firms these days are increasingly seeing professional traders register and deposit substantial six-figure sums because they're finally making the move away from other trading methods towards better regulation, better safety and security of funds, better customer service, smaller spreads and NO TAX. The ones whose prejudices don't stop them from assessing the facts, that is.

2) How is a spread betting company better regulated than a broker say like GNI in the UK or IB in the US?

I have never myself used GNI or IB and have therefore done no due diligence on either and am unable to answer. My guess, simply from the fact that you're asking, is that they're not. But I can tell you as a certain fact from my own personal knowledge that the SB firms are a damn sight better regulated and also far more honest people in the first place and with far less incentive to play games with their clients' funds than many of the retail forex brokers at which many t2w members are routinely trading and risking their funds every day without even being aware that they're dealing with a bucketshop.

3) How is the security of funds with a spread betting firm better than the security of funds with the above 2 brokers

I still can't comment on either of the 2 brokers you've asked me about because I still use neither. Unlike some of the people here, I don't freely dispense information when my information's unreliable or prejudiced. But I can tell you that the FSA, which regulates all the UK SB firms (strictly and with real teeth) requires client funds to be held in segregated client accounts, never in the same accounts as the firm's own money (unlike many brokers). That's designed and enforced for the clients' protection. That may also be the case with the 2 firms you're asking me about, of course, and I imagine it is, otherwise you wouldn't be asking. But I can tell you that it ISN'T the case with many of the "brokers" at which many t2w members are routinely trading. It's extremely common for people to be counterparty trading without even realising until they have an "accident" that costs them money. Because of the mechanics of spreadbetting, that's actually very much LESS likely to happen there, contrary to what ill-informed and opinionated folk either believe, or like to say that they believe.

4) How do the SB companies do better customer service than regular brokers of Exchange based products? That is a very strange point you make there.

That would indeed be a _slightly_ strange point. I suspect we could actually debate it at great length, but since I use both groups and you say that you use only one of them, it wouldn't be a very fair exchange of views, would it? You wouldn't be able to contribute much to it if you don't actually use SB, would you? You wouldn't be able to compare as I can. Anyway, the point is that that wasn't what I actually said! Again you have misquoted me.

5) Have you ever seen a 1 tick spread on a FTSE spread mkt or a $0.10 on a Gold SB market for example? And while you're at it please name JUST one financial product that has a smaller SB bid-offer spread than its associated Exchanged traded product.

I have never said that there's a financial product that has a smaller SB bid-offer spread than its associated exchange-traded product. (It would be difficult for the SB firms to make a living if that were the case, wouldn't it?)

You are completely missing the point. As ever. And in spite of people increasingly explaining it to you.

What matters to the successful trader is the overall cost of doing business. The overall cost of doing business is by no means limited to the bid-offer spread of the product dealt in! There are many other factors to take into account. It's naive to pretend otherwise.

I don't want to write a book here, but one tiny but everyday example will perhaps illustrate one of the many points you're missing. I suspect, actually, that you're choosing to miss many of them deliberately, and I'm explaining them not to try to convince you of anything, but simply to demonstrate to any other readers how wrong you are and how much they would be being mislead by your prejudiced agenda if they made the mistake of taking any notice of you. (Actually my PM inbox suggests that many of them don't anyway!). So ... let's take a UK share which has an SB quote of something under 0.5% wider than the underlying. This can easily be a cheaper way to deal because of the saving in stamp duty alone. (Not to mention the little difference between paying 40% tax on the profits and taking them tax-free.)

6) What would you say to the tax-man if he comes knocking at your door asking for some tax and all you traded was spread bets. Would you show him a glossy advert from say City Index which says 'all profits tax-free' and then slam the door in his face. Or would you be petrified that he'd class spread betting as your main source of income and order a full audit of your financial affairs with tax to pay?

No, I wouldn't be at all terrified that he would class spreadbetting as my main source of income because I have never in all these years tried to hide from him that spreadbetting is my main source of income. Fortunately for me (and for any other traders using SB), in this case the classification of one's "main source of income" is not relevant to whether or not it's taxable. You really haven't understood this subject at all, have you? I suggest that you read the lucid and coherent explanations of this subject given in many other threads here and in many other internet trading forums on this subject. And then discuss it with a tax inspector and a chartered accountant. (I've done both, and I notice that Roberto, who has posted a lot here on this subject, has had dealings and correspondence with 2 different tax inspectors and 2 different specialist chartered accountants and is very clear about this subject because all 4 of these people have told him exactly the same thing (and guess what? It's the exact opposite of what you're saying).

And don't say it can't happen because it can and has.

I'm not going to stoop to your customary level of childish insults, Anley, so let's just take the extremely charitable view of assuming that you're completely mistaken and misinformed about that. I promise you that if it ever happens, it will cause more major and dramatic shock-waves throughout the UK trading and investment communities than anything you've ever seen before in your life. It would be not only the front-page story but the entire contents of _every_ trading magazine in the UK and Europe.

In case anyone's lost among all the words and argument here, let's just state a couple of things openly, simply and clearly here:

(i) no UK resident has ever yet been assessed for income tax or any other form of tax on any spreadbetting profits.

(ii) the Inland Revenue has never announced, indicated or threatened any action or intention to try to tax any UK resident in any way on any profits resulting from spreadbetting.

Be really, really clear about that, Anley. It's important. Because the fact that all spread-betting is tax-free is one of the many factors that makes it the most desirable, profitable and convenient forms of trading for many people. So don't start lying to people about it.

Answer those questions intelligently and we can talk some more.

Thank you, but I'd rather not. I am not often at this site anyway. However, I _will_ continue to correct you every time I see that you've been blatantly misinforming people. And I hope others will do the same. I notice from other threads that the moderators have also started doing that now, and I welcome that.

Otherwise stop making a fool of yourself.

Don't be so RUDE please. It endears you to nobody. You have admitted that you don't use spread-betting. Everyone can see that you know very little about it. I, on the other hand, make my living that way. I think I'm at least as entitled as you are to discuss the subject here. Other people seem to think that too.

Let me just hope that at least my posts give newbie traders something to think about

Let's hope that if they do, what they'll think is something like "I really must be careful not to pay too much attention to the out-of-date, opinionated and strongly expressed views (frequently corrected by others with more information) of people who may not actually know what they're talking about and have no experience of it at all"!

Also you SB fans should remark when you tell everyone that the spread on FTSE is 2 points is that 'only for day-trading'. If you want to hold a position for a few days or even a few weeks then the spread difference goes up by hundreds of % and these costs can be a killer for many people.

That's just plain WRONG, Anley. That's completely UNTRUE.

You are mistaken about that just as about most things to do with spread-betting.

You obviously don't understand how rolling products work at all.

There are NO additional costs at all on a rolling index position.

You get TheBlades and Roberto and myself and one of the moderators trying to explain the situation to you, but ultimately the words "Ok, sorry, I made a mistake, my information was out of date" are simply not in your vocabulary. And yet you still want to keep posting on spread-betting, which you don't use yourself, to try to "help newbies" as you put it. Anley, they know more about it than you do!

 

[Roberto]

Nice post, doc - many good point,s thank you. Always a pleasure to hear the voice of experience and reason. But to be fair to Anley, he has actually made some rather dramatic concessions since the thread started. You may not have noticed it, but yesterday he actually said:-

Of course one cannot discount SB over say Exchange based products

so clearly he's also learnt something here, even if, as you say:-

ultimately the words "Ok, sorry, I made a mistake, my information was out of date" are simply not in your vocabulary.

That may be the case, doc, but he's conceding it in a different way, and I think we should just acknowledge that that's all we're going to get, and move on, ok?

Just feeling conciliatory here, and exasperated by arguing, and wanting to offer an olive-branch all round, or something like that.

Maybe the moderators would like to declare the thread closed now, or something? (He asked hopefully).