CHRISTO9HER
Active member
- Messages
- 123
- Likes
- 27
It is often said that spread betting is a good way for newbies to learn to trade. Here I present the argument that it is in fact not a good place for them to start and they are better off with accounts with brokers offering CFDs or direct access.
Ok, so we all know the problems that are inherent in spread betting. The price spikes, the profitable accounts being suspended, disputed trades etc. This thread is not really about discussing these things. We all know that they go on (to some extent) and there is no point in discussing it any more. This thread is about discussing for whom the benefits of spread betting outweigh the costs.
The main, (if not only) advantage of spread betting is that it is tax free. This is why people use it and is really the only reason that these companies exist. There really is no other advantage to spread betting other than this that cannot be offered by CFDs. (Please, if I am overlooking something here then point it out).
So really, everyone needs to ask themselves whether or not they are gaining enough of a tax advantage from spread betting to put up with the rubbish.
An example of someone who should use spread betting
You are a trader with a few years of experience and who knows that over the course of a year your strategy is likely to result in a decent profit. You know what is wrong with SB but also know how to minimise the effect that it has on your trading. You know not to leave your stops at round numbers so they can knock them out, you know that you cant use very short time frames with SB accounts or they will disable the account. You have access to prices of underlying instruments so that you can know roughly how good the prices that you are getting are.
In summary, you can quantify the tax advantage that you are receiving and are convinced that it outweighs the disadvantage (that you should also be able to quantify to some extent).
Why newbies shouldnt use SB
Firstly, ask yourself honestly, what tax would you be paying if you were using methods other than spread betting. You have to remember that you are unlikely to be profitable in the first year. In fact, if you break even, you have really done pretty well (assuming you were fairly active). The reality is that if newbies were using methods other than SB, they would get treated a whole lot better, would learn to trade using real market prices, and would still pay little or no tax. In fact, most would end up with a capital loss that they could use in the future once they are profitable.
You have a tax free allowance of £8k per year, USE IT. Lets say you have a great first year and make a 40% return on your account (trust me, this is a great first year).
Starting account Return Ending account Tax Bill
10k 40% £14k £0
20k 40% £28k £0
30k 40% £42k £720
40k 40% £56k £1440
NOTE: These calculations were done using 8k tax free allowance then flat rate of 18%
You see, its not much. And realistically a 40% return in year 1 is probably an upper bound. So to all you newbies, I urge you to think about whether you are getting enough advantage from the tax benefits of spread betting to justify using it.
If you end up paying a bit of tax.........CONGRATULATIONS.....enjoy it, you're doing well!!!
Ok, so we all know the problems that are inherent in spread betting. The price spikes, the profitable accounts being suspended, disputed trades etc. This thread is not really about discussing these things. We all know that they go on (to some extent) and there is no point in discussing it any more. This thread is about discussing for whom the benefits of spread betting outweigh the costs.
The main, (if not only) advantage of spread betting is that it is tax free. This is why people use it and is really the only reason that these companies exist. There really is no other advantage to spread betting other than this that cannot be offered by CFDs. (Please, if I am overlooking something here then point it out).
So really, everyone needs to ask themselves whether or not they are gaining enough of a tax advantage from spread betting to put up with the rubbish.
An example of someone who should use spread betting
You are a trader with a few years of experience and who knows that over the course of a year your strategy is likely to result in a decent profit. You know what is wrong with SB but also know how to minimise the effect that it has on your trading. You know not to leave your stops at round numbers so they can knock them out, you know that you cant use very short time frames with SB accounts or they will disable the account. You have access to prices of underlying instruments so that you can know roughly how good the prices that you are getting are.
In summary, you can quantify the tax advantage that you are receiving and are convinced that it outweighs the disadvantage (that you should also be able to quantify to some extent).
Why newbies shouldnt use SB
Firstly, ask yourself honestly, what tax would you be paying if you were using methods other than spread betting. You have to remember that you are unlikely to be profitable in the first year. In fact, if you break even, you have really done pretty well (assuming you were fairly active). The reality is that if newbies were using methods other than SB, they would get treated a whole lot better, would learn to trade using real market prices, and would still pay little or no tax. In fact, most would end up with a capital loss that they could use in the future once they are profitable.
You have a tax free allowance of £8k per year, USE IT. Lets say you have a great first year and make a 40% return on your account (trust me, this is a great first year).
Starting account Return Ending account Tax Bill
10k 40% £14k £0
20k 40% £28k £0
30k 40% £42k £720
40k 40% £56k £1440
NOTE: These calculations were done using 8k tax free allowance then flat rate of 18%
You see, its not much. And realistically a 40% return in year 1 is probably an upper bound. So to all you newbies, I urge you to think about whether you are getting enough advantage from the tax benefits of spread betting to justify using it.
If you end up paying a bit of tax.........CONGRATULATIONS.....enjoy it, you're doing well!!!
