Using Spread Betting to invest??

[cara2]

SB is regarded as "gambling" so tax free. Apparently 'they' could, but never have, chased anyone using it as a career.

While the Spy is running say 25%, you could bet eg (ignoring extra margin requirement) 20k on margin at 5:1

Your 100k becomes 125k in a year. With a swap rate a couple of % over base, say 7% (is that fair?), you gain 25-7 = 18k.

There's a spread in there, maybe some small costs... (I don't have a SB platform, I'm thinking of IG now Capital is shut) so it's approx

90% return in a year tax free, what am I missing?? Why is this not a standard strategy?

(Perhaps Options would make more sense, I don't know enough about them. )
25% may take a hit, but some bonds have beaten that.


I have this , but how viable is it? really?

 

[timsk]

90% return in a year tax free, what am I missing?? Why is this not a standard strategy?

Hi cara2,
It is a standard strategy for anyone who puts their money in an index tracker fund. It's all rosy so long as the index continues to move up which, in the long term, it pretty much has to. But, in any one year, there could be a correction (e.g the Covid outbreak) and the index tanks 25%, at which point you'll get a margin call from your broker and the know-it-alls on here like me will tell you that you were over leveraged and gambling!

 

[cara2]

Thanks @timsk. I see it would only take a modest dip at 5:1. Is it possible to use SB at lower leverage? How about using SB with better tempered instruments. I need to dig, I'm being lazy and hoping someone has been round the loops.

Perhaps the future's orange, but I don't suppose it's on any SB platform. Do any have OEICS?

 

[ChelseaR]

Hi Cara2, I feel like your strategy looks good on paper but it could turn out to be very risky due to leverage and market volatility. Even if you’re getting tax-free returns, other fees like spreads, swaps, and if the market moves suddenly - slippages, can eat your profits. What risk management methods are you using?

 

[cara2]

Not with you @ChelseaR
Spreads - small on a long term position
Swaps - accounted for & queried
Volatility - is the position more threatened by volatility than simply putting 100k in the instrument unleveraged - no? Unless you use up your margin.
No slippage if you're just holding
RM - same as with a normal long term holding.

I don't see any of that is specific to SB, - other than the swap which is the subject essentially - is it?
What I don't know is if there's a difficult with a long SB [position other than the swap rate.

I use cfd every day. The leverage isn't really an issue. My swap rate is high so I don't hold overnight often, and it's taxed.