Trading Forex through a spread betting account: is it advisable?

[Max_Antax]

Dear all,

I’ve been trading Forex for a while with a modicum of success through and ECN broker.

Recently, I’ve realised that you can trade Forex through a spread betting account with a spread betting firm. The mechanics of the trade are pretty much the same, in terms of spreads, available leverage, margin requirements and lot size (some spread betting operators even accept bets of 0.1 counter currency per pip i.e. a micro lot).

The advantage would obviously be the tax free treatment for UK residents.
However, I am puzzled about one aspect, which is transparency and potential conflict of interest.

If you spread bet on – say – the FTSE100 Index or Vodafone, you have the official feed from the LSE telling you what is the current price.

In the murky word of Forex, as you well know, all transactions are OTC and there is no central clearing house. So I’m wondering: what kind of feed do spread betting companies use when offering bets on Forex? Do they behave like to “bucket shops” of old and manipulate prices against their customers?

In summary: when trading Forex is it a good idea to take advantage of the tax free treatment and go for a spread betting account or is it advisable to stick to a reputable broker?

Any advice would be much appreciated.

 

[tomorton]

If you're successful enough trading through an ECN broker to have to pay tax, then why not shift some of your trading to SB. Income from SB is currently untaxable. HMRC are resistant to claims by traders to be taxed on currently untaxable winnings as they would then face the probability (in HMRC's eyes) of tax rebates when the trader goes into losing years.

A member who is in SB and who is taxed on their SB winnings as income might post with a contrary view but I'm not holding my breath.

The only SB firms worth trading with would be UK-based, FCA-regulated, with segregated clients's accounts and members of the client funds protection scheme.

They won't trade against you specifically but it is very common for day-traders to get stopped out as the firm widens its spreads to balance their own risk levels. Best advice is not even to bother trying to trade very short-term with SB firms. If you made it very difficult for them to manage their real-time risk through running very large very short-term positions, I expect they would eventually have to take some action.

If you're trading long-term SB spread volatility is not going to be an issue.

 

[Whitehead]

I don't know how reasonable it is, but many traders do it and they're content with it. That's why you need to consider spread more carefully, it especially concerns the newbies.

 

[mpups]

With SB you'l find several popular instruments with cost effective spreads up to a certain size but also many where the spread is generally too wide to bother. You are limited in this way in the instruments you can trade, and also because they will not offer all instruments on the market anyway. Also you pay the financing to hold overnight on certain instruments even if you don't even need to be borrowing. That being said it can be a nice straight forward format for trading and there are some great platforms out there. The leverage is good. And you can day-trade without a $25,000 minimum requirement

 

[NVP]

Sb is deemed as tax free but try making a lot of money at it regularly .....the uk HMRC will come a knocking my friends

See some of the discussions on this a few years back with forexperian and a few others ....I can’t find the thread right now but a lot of us compared notes and agreed that HMRC were enforcing tax demands on individuals who were making consistent returns from trading and it was therefore deemed to be a business

Just remember that if it moves they tax it .....no free lunches gang

N

 

[hatemypips]

What about taxes from crypto returns? Any example outside of US where you paid % from trading on BTCUSD?

 

[NVP]

no idea .....i dont go near them ......

you would have to crystallise the profit first deducting expenses ......then persuade the taxman its from gambling and not eligible for capital gains ....or that you are not running a trading business

good luck with that ......


N

(Hint - never ever ever p*ss off the taxman.....they really will win in the end)

 

[tradespreads]

If you're making money just pay the friggin tax.

 

[C-12]

How about a bit of both? Day trading using the ECN for as your primary day to day income (subject to CGT or income tax) and some gambling positions through the SB. I would be very doubtful that would land you in trouble but who knows?

As for execution, speads, requotes etc, there's a noticable difference between an ECN and a bucket shop like IG.