True cost of a spread bet?

THENOX

High!.:-)

Just to confirm: I've read in a spread betting leaflet that it's really cool as they don't charge you additionally for placing a spread bet :rolleyes: but all commission is built into the spread . But doesn't it mean that if the spread between buy and sell bet is 6 points and one will place a trade ov e.g. L20 a point (moderate one) placing that bet will cost L120? :eek: (price will have to go 6 points his way before any profit can be made? :mad:). -Am I getting this right an isn't it better to use contracts for difference then?


Second question: how does the spread between actual bet and between bid and offer spread of 'the underlying' works? Are they both/how reflected in the bet?

Any ideas?

THX,

THE NOX

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No Risk, No Return...

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[Deleted User]

THENOX wrote: »

High!.:-)

Just to confirm: I've read in a spread betting leaflet that it's really cool as they don't charge you additionally for placing a spread bet :rolleyes: but all commission is built into the spread . But doesn't it mean that if the spread between buy and sell bet is 6 points and one will place a trade ov e.g. L20 a point (moderate one) placing that bet will cost L120? :eek: (price will have to go 6 points his way before any profit can be made? :mad:). -Am I getting this right an isn't it better to use contracts for difference then?


Second question: how does the spread between actual bet and between bid and offer spread of 'the underlying' works? Are they both/how reflected in the bet?

Any ideas?

THX,

THE NOX

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No Risk, No Return...

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Unless your very experienced, very lucky or at the start of a raging bull or bear market (IMO we are at the end of a bear market) then the house ALWAYS wins.

Leave the covered warrents, CFD and spreadbets to one side or only risk 1-5% of your liquid capital. Its pretty much a mugs game, there are even rumours brokering houses sell margin call details to hedge funds that leverage volatility in order to collect the margin calls. This happened recently when a rather suspicious 100point movement in one day on HBOS share price hit a 120 million sterling margin call moving the market 50 points in a second.

CFDs, spreadbets and warrents the brokering house will place all his fees and borrowing rates into the spread and thus stacks the odds against you even more. I would suggest learning trading techniques and practicve for 6months without money, then start with small amounts. So many people start up and lose all their savings 100K+ is regularly lost by noobs.

I would recommend it only as the cap on a large portfolio of savings and investments and not something you depend upon.

THENOX

Actually it's nothing more than a form of gambling :beer: (efficient markets) or loser's game (inefficient markets) :eek:. I've been doing just a bit of a 'reconnaissance flight' by skimming through the SB and CFD leaflet :rolleyes:, that's it for now ... Thanks for confirming my viewpoint Are you able to confirm my maths from the previous post as well..? :cool: And compare it to CFD fees (second question)...


THX,

THE NOX

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Tools Of The Trade...

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Biggles

Nox, if you're not sure your maths is correct (which it is!) you need to keep doing the research until you're sure.

And as regards comparing SBs and CFDs, each firm will differ. And CFDs are a different kettle of fish from SBs with regard to the financing and the timescale. But the fee isn't where it stops, as firms that claim a tight spread will, by changing the spread or moving the price against the underlying when there is volatility, skew the theories entirely.

So, as Yant says, unless you have an edge (which is very rare), the house wins.

THENOX

Note that my post is just about that: doing research by confirmation and by asking question regarding financing CFDs

Would you be able to tell sth more about the difference in financing CFD as far as I've read there are two charges: percentage for placing a bet (ov deposit or the whole sum?) and a running charge as a percentage of the whole sum 'borrowed'. -My question is/was how does this relate to SB charge for two bets that will give the same profit/loss when the underlying moves given amount? At the first sight CFD looks cheaper but it's too good to be true as peoples will lean toward it? -How it really is..?

But much more interesting question regarding to what you've said what do you mean by this: "But the fee isn't where it stops, as firms that claim a tight spread will, by changing the spread or moving the price against the underlying when there is volatility, skew the theories entirely." -changing the spread when you want to roll it (I reckon?), OR moving the price against the underlying -what does this mean?

THX,

THE NOX

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In the short run, the market is a voting machine, but in the long run it is a weighting machine.
Benjamin Graham

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barrooo

Right, i'll give this a go..

Spread betting = no income tax, no Capital gains Tax (however cannot claim losses either)
CFD = capital gains tax

As for financing depends on type of bet:
Spot markets have smaller spreads, but are generally financed overnight using LIBOR +/- a percentage depending on broker. So some have tigher spreads but higher carry charges
Futures have higher spreads and the carry charge is built into the market value, but obviously don't have a carry charge per se, it can be massively complicated, and if you want in depth knowledge on this contact your individual broker, as they have to supply you with documantation on this by law.
Some brokers and banks do go 'stop hunting' generally around even numbers etc, but this is all part of the game.
It is possible to make money on these things, but don't expect to be a millionaire overnight

THENOX

Thanks barrooo! :beer:

Thanks especially for pointing out CGT on CFD and stop hunting :eek: :mad:.

So can I assume that for small and middle stakes SB is cheaper than CFD or it is more or less as costly although charge structure is different (only in terms of costs I know that they serve bit different purposes).

THX,

THE NOX

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October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.
Mark Twain

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barrooo

yeah as I said the main difference between CFDs and SB is the tax on any gains made, the financing charges are about the same.

I personally go for SB, just because it simplifies matters.

Also depending on your type of trading, if your looking at daytrading, so closing out positions before the roll over, you'd be better off trading the cash or spot market, but if your looking at longer term trades, more than a week, then look at trading futures

Hope this helps

tradetime

THENOX wrote: »

High!.:-)

Just to confirm: I've read in a spread betting leaflet that it's really cool as they don't charge you additionally for placing a spread bet :rolleyes: but all commission is built into the spread .

Ok forgive me, I'm a little bit drunk and pedantick atm (spelling :rotfl: ) that's like saying a broker charges $10 for a trade, but doesn't charge you additionally. the price is in the spread mate, and also the ability to move the spread.

THENOX wrote: »

But doesn't it mean that if the spread between buy and sell bet is 6 points and one will place a trade ov e.g. L20 a point (moderate one) placing that bet will cost L120? :eek: (price will have to go 6 points his way before any profit can be made? :mad:). -Am I getting this right an isn't it better to use contracts for difference then?

Ok as stated a bit drunk, well dude it is Friday night dunno what ur saying ov?? L20 maybe long 20?? but anyways, if the spread is 6pts then yes you gotta make 6 points just to break even!! !!!!!! are you trading, and where with a 6 point spread, Dow out of hours, maybe?

THENOX wrote: »

Second question: how does the spread between actual bet and between bid and offer spread of 'the underlying' works? Are they both/how reflected in the bet?

Any ideas?THX,

THE NOX

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No Risk, No Return...

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Not quite sure what ur asking here mate, the bet has a bid / offer, the underlying has a bid / offer.
The market, lets say the US S&P has a bid / offer and has a tracking spreadbet, there are two markets here, the real one, the S&P and a shadow (for want of a description) the speadbet market ( the spreadbet market is not real, it's a synthetic market, that roughly tracks, in this case the S&P) The spread bet firm makes money in either of 2 ways, mainly, the majority of people trying to trade a stock market are way out of their depth, have no idea what they are doing, and lose, this creates a + side of the book, against which a small amount of people have an idea, know what they are doing, a - side of the book. The + side of the book outweighs the - side by 8-2 so the firm makes money, they add to this by tracking any winning clientelle and offsetting their bets by buying futures against their bets, so the hose always does win, overall, but if you understand a market you can make money through a SB firm, thoughit's quite a bit easier through a broker.

THENOX

I was asking: if the underlying has a spread and a spread bet (shadow) has a spread is it right to assume that a player pays twice the spread: the underlying has to move up both in it's own spread and a spread of a spread bet for that player to earn any money?

THX,

THE NOX

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Bernstein, W. The Probability of Success...

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tradetime

THENOX wrote: »

I was asking: if the underlying has a spread and a spread bet (shadow) has a spread is it right to assume that a player pays twice the spread: the underlying has to move up both in it's own spread and a spread of a spread bet for that player to earn any money?

THX,

THE NOX

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Bernstein, W. The Probability of Success...

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I suppose to a point that is probably fairly accurate, though someone like barrooo could answer better, as he seems to spreadbet if I've read correctly, so he'd be more familiar with the reality. I suspect it depends a lot on the spread being offered as these differ slightly from one to another, but likely the easiest way to look at it as a rule of thumb is by a static trade ie if you were to buy and immediately sell without the market moving, what would the cost be. On the ES mini it would be a 1/4 point equivalent to $12.50, on the equivalent in a spreadbet shop it's about 3/4 point or $37.50. That is to say, if you imagine trading 1 ES contract, to simulate that with a spreadbet you would have to bet $50 a point since that is the value of the ES. So the difference all other things being eqaul between a ES trade, and and a bet on the same product would be $37.50 - $12.50 - c where c = comissions (about $4.80)