iii Interactive Investor Share Dealing

premierfella

On the bid/ask spread showing, close to 4pm is also a time you might expect a slight widening of the spread (close to market close).

My understanding was that the indicative price you see is either 15 minute delayed or based on the last actual prices iii/Halifax have (i.e. from actual live quotes obtained by their other customers attempting trades). AFAIK the only "live" price you see on iii is when you click to request an actual trade (the buy/sell price you get 15 seconds to accept)?

veloo

tradetime wrote: »

For short term trading, with a limited amount of capital, I would probably look very closely at spreadbetting, it may not be suitable for everyone, but it is definitely something to consider.

the warnings about losing more money that i put into the bet scares the heebiejeebies out of me. as it is, on my first second share buy/sell, i lost £77, making me moon for a few days. i bought too early, and then i got scared and sold out too early when the egypt crash occurred. if i had waited, i would have made a handsome profit. a good learning for me.

premierfella wrote: »

On the bid/ask spread showing, close to 4pm is also a time you might expect a slight widening of the spread (close to market close).

it was probably about that time.

tradetime

veloo wrote: »

the warnings about losing more money that i put into the bet scares the heebiejeebies out of me. as it is, on my first second share buy/sell, i lost £77, making me moon for a few days. i bought too early, and then i got scared and sold out too early when the egypt crash occurred. if i had waited, i would have made a handsome profit. a good learning for me.

Firstly, and most importantly, you have to take any information you find on the web and thoroughly examine it for yourself. Whilst the internet can be a great source of knowledge, there is a huge amount of misinformation and ill-informed commentary.

So I will offer you an alternative perspective to the "warnings" you have heard. Not to dismiss them, but rather put them in context. The main fear, as you have stated

losing more money that i put into the bet

stems from the fact that like virtually all other derivatives, spreadbets use leverage (sometimes referred to as gearing). This allows a small amount of money to behave like a much larger amount of money, thus any profits relative to the amount of money you have put down are highly magnified, and conversely any losses relative to the amount of money you have put down are highly magnified.

The main risk comes when an idiot uses the power of leverage to control a position many times larger than he could afford to buy through a normal brokerage.

In contrast, a smart, conservative, cautious trader will only trade the same position size he could afford to buy in a normal brokerage, and use the leverage to simply reduce the amount of money he puts down.

Example: Assume you have £550 to risk on NG, since you mentioned it before. (We will ignore fees and commissions for this example)
In a normal brokerage such as iii that £550 will buy you 100 shares of NG. 100 x 549.5p = £549.50p Your maximum risk is that NG goes bust overnight and you lose your entire investment £549.50

To replicate this with a spreadbet, you would bet £1 per 1p on NG, this would create a synthetic position of 100 shares. Your maximum risk would be NG goes bust overnight and you owe 549.5p x £1 = £549.50p. Obviously since leverage has allowed you to control this position by only betting £1 you will lose vastly more than you bet, 549.5 x to be precise, but importantly no more than you would have lost had you bought it through a brokerage.

The advantages for people trading with small amounts of capital, is significantly reduced costs, no tax, either capital gains or stamp duty. Since you are not actually buying anything, you do not compete with other bidders so limit orders will fill instantly once the spreadbet price trades at that level.

There may be other issues peculiar to spreadbetting of course, which since I don't spreadbet I am unaware of. I speak purely to the leverage issue, since I am familiar with that through other derivative products

I trust that puts the risk with leverage into context

sabretoothtigger

I basically repeated below what tradetime just said, sorry

So 1 unit is 100 shares. That then makes the price of the share really important. Theres EMED at 16p a share, 100 shares of that is only £16 to buy. Buying that little normally would be outweighed by dealing costs but spreadbets only charge % costs so you can pace yourself

On the other hand they will also offer Shell shares at £21.45 each. So 1 unit or 100 shares means you just spent over 2 grand with a click of a button. The company will also lend you 95% of the cost so you might not even realise what you just did, it only costs 100 up front

Shell going broke is fairly unlikely but then BP halving in price shouldnt have happened either. Just this last year Shell was £15.76 a share, if that happens when have put in 1 unit with your little 100 quid account, you'd owe them about 600. 100 deposit, 600 loss.
So avoid the expensive shares I think is best if new

Otherwise its nothing bad, its a great tool. Just pretend you paid full price everytime

My firm lends me the deposit also so Ive never put any money in , I just place a deal and withdraw cash after it goes up.
I find that makes me more relaxed, otherwise market tries to panic people to sell

For shell type shares I think thats too much risk in one place, I recommend normal shares instead because the price always tries to go down before going up.
I mix the two accounts, look at what SKR has been doing so I downgraded that to shares instead of trying to guess

Please can I get some feedback from other users of iii? I wonder if it is just my perception.

They similar to most brokers. They wont be 1% off the normal quote but spread varies so its hard to say. moneyam will let you see a share price bid and offer live.

The best broker Ive seen for spread was selftrade, they had some kind of system to get the best quote on the order book. Unless you deal 10k each time it likely doesnt matter too much, its mostly the commission which costs and selftrade isnt the cheapest

old MSE article:
http://www.moneysavingexpert.com/savings/cheap-online-sharedealing

i looked at iii's PortfolioBuilder (i think you mean this) with a £1.50 commission, and i was very attracted, and the primary reason for me starting with iii and share isa. but i only used it once, and don't think i will use that again. i find i can get a better total price timing my trade right. the portfolio builder trades about once a week. most share prices have a very wide spread between their weekly highs and lows. it is very good value if you buy/sell small quantities of non-volatile shares.

This was probably my biggest mistake when starting. Let the price come to you, your timing it is likely not that important in the big picture I think.
For investment once a week is fine I think, I woke at 7am the other day and went through and chose a couple shares to get at 1.50 cost each.
Only small amounts but thats all thats needed when it costs so little and if I mess up what is a good price I can just set it to buy again another time

tradetime

I want to be clear, I am not advising anyone that they should spreadbet. Since I don't spreadbet I don't know everything there is to know about it, I am simply suggesting that on the surface it looks like a very interesting avenue to consider, particularly for anyone with limited capital and attempting to trade short term positions.

Just pretend you paid full price everytime

If I were advising someone inexperienced with leverage, who had decided to spreadbet, this would definitely be the approach I suggest they started with. Deposit a level of working capital into the spreadbet account to cover margin and moderate drawdown, and only bet for position sizes you could afford to buy and put the value of those positions into a specialy opened easy access account. So for example on Monday you want to buy 100 shares of NG you deposit maybe 10% of the value in your SB account and the remaning £495 in your easy access account and you can then bet £1 per point, this way you know exactly where you are leverage wise until you get used to it.

veloo

thank you tradetime and sabre for kindly and patiently describing spread betting. it certainly whetted my appetite. i have looked further and understand better, but now seem to be confused between spread betting and CFDs. it seems all the traders prefer CFDs, and the only difference i understand is tax, which could be a potential advantage. they seem to say that i wouldn't own the shares. but i think same is true for demat shares.

it seems the advantage to either of the above is - (a) going short, (b) day (or short-term) trading. if i buy and hold for >1 month, then it might be advantageous to purchase the share directly via broker.

i am not a day trader or a short term trader, and would keep my purchased shares for more than a month. would bet/cfd still be useful perhaps? i usually buy (as per my limited understanding?) fundamentally for the medium term, but if the market becomes very volatile in the short term and moves too quickly, then i'd sell, if i think i can get a better price later. so trading costs are becoming v.imp to me. i'm considering moving my isa to x-o.co.uk. their commission seems to be half of iii. should it matter which broker buys my shares, if i use them for execution-only? has anyone used x-o-co.uk?

tradetime

Some links providing information on spreadbetting and CFD's
http://www.contracts-for-difference.com/Spread-betting-vs-cfds.html

http://www.independentinvestor.co.uk/cfd/cfds-vs-spread-betting.html

http://www.thespreadbetcentre.com/spread_betting/guide/spread_betting_vs_cfd_trading

There can be issues with the length of time you are holding for due to financing cost, I have a feeling they are a reasonable option verses actual shares for up to 6 months, but to be honest, since I don't use either product I am not totally familiar with the details.

Both CFD's and Spreadbets are derivative products so no you do not own the shares. Neither product incurs stamp duty, but CFD's do incur capital gains.
Commissions are charged for most CFD's where as they are included in the spread on a spreadbet. This may make spreadbetting the cheaper of the two depending on how the CFD provider sets its commissions.

As far as basic brokers are concerned for what you seem to be doing I'd say cost and reliability are the main consideration. Don't know anything about x-o-co.uk. There have been a few threads about it on here though.

sabretoothtigger

I tried CFD but its for big business really. They offer proper normal share quotes I think so if you are buying 10k worth you will find the spread matters most in costs.

If you are keeping it small 1k or under (in total value not just your deposit) then spreadbetting should be more nimble and cheaper

veloo

the quotes in this post are from http://www.contracts-for-difference.com/compare/cfds-vs-spread-betting.html

One important difference between spread betting and CFDs relates to the counter-party. When you take out a DMA CFD either long or short it is technically a position against another trader (hence the name). Your CFD provider makes his money on his commissions and the interest charge he will levy every 24 hrs. If you lose money on your trade beyond these costs, your CFD provider doesn't make any extra money. Instead when you take on a spread bet, you're taking a bet against the spread betting company. They hedge your position internally or on the markets but they have an inherent interest in you losing on your bet. Not only do they make money on the spread and through commissions and perhaps financing over time, but they will make more money if you lose on your trade. This is something worth remembering. There's a reason spread bets are classified as gambling and are tax free.

A spread-betting firm posts its own two-way price like a bookmaker, a take it or leave it price. Most CFD providers however, allow you to post orders within the bid-offer spread enabling the individual to become a price maker rather than a price taker.

The bid-offer spread is the most significant cost of trading and is the main reason why hedge funds use CFDs and not spreadbets. Access to the main market (live market prices) also means access to real prices and the pool of deepest liquidity. This means that you have more protection should the market move aggressively against your position, but with spread betting you trade slightly behind the market, against an often wider spread, and the contract is between yourself and the market maker. At some point the trader will need to exit the trade and may find himself disadvantaged by dealing with a counterparty that not only knows his position but can quote a price that may more suit the provider than the individual.

This thread started due to my frustration with iii Share Dealing and its Market Makers offering me spreads (I suspect) not tallying with the current market prices. I also later compared my actual trading history and transaction records with the LSE trading history, and found no mention of my trading time/price/quantity listed. Hence my suspicion of iii internal market makers trading with me.

I don't think I will feel comfortable playing bookies against themselves. Spread betting is not for me, if what they say above is true. I will feel a lot more comfortable with a DMA (Direct Market Access) account and able to place my own offer/bid prices, as in a CFD. With CFD commissions of 0.1% or lesser with no minimum, I am attracted. Some providers, like spreadco.com, have no commission and good reviews. In contrast, CI (City Index & partners) has some really bad reviews here http://www.independentinvestor.co.uk/cfd/city-index.php.

Tax is not a worry, as I don't think I am going to be making >10k profits, atleast not this year or next. I don't feel comfortable buying/selling on high leverage, and I like tradetime's suggestion of keeping a related account fully funded.

I wonder if CFDs can be held within ISAs? I understand, we can have CFDs within SIPPs. But, I don't have any SIPPs at the moment, and not considering one.

tradetime

my frustration with iii Share Dealing and its Market Makers offering me spreads (I suspect) not tallying with the current market prices

I don't really get involved much with the LSE other than a few stocks in my ISA, so I've never spent much time studying the ins and outs of it. But I suspect the principle of it and Market Making is not much different from the US

iii is a small broker, I doubt it is a MM (Market Maker) in any stock, nor will it have it's own MM's. MM's tend to be large investment banks such as JP Morgan, Goldman, BarCap, HSBC, Deutsche, etc. They are firms who accept the responsibility to always provide bid and ask quotes in the stocks for which they "make market" and they compete with each other, as you might have guessed. I suspect like New York much of it is done by computer now
As such iii do not trade with you, (they do not buy your stock from you or sell it to you) to do so would involve them taking a position in the market and assuming market risk. Instead, they act for you, offering your stock to the various market makers accepting the best bid / ask and charging you a commission. Since the source of their income is commissions viz a vis clients and order flow, it is not in their interests to give you anything but the best available price.

I don't think I will feel comfortable playing bookies against themselves. Spread betting is not for me, if what they say above is true. I will feel a lot more comfortable with a DMA (Direct Market Access) account and able to place my own offer/bid prices, as in a CFD. With CFD commissions of 0.1% or lesser with no minimum, I am attracted. Some providers, like spreadco.com, have no commission and good reviews. In contrast, CI (City Index & partners) has some really bad reviews here http://www.independentinvestor.co.uk/cfd/city-index.php.

Yes, I don't advise or encourage anyone to spreadbet, or not, or use any other means of market speculation for that matter, all I seek to do here is provide some balance.
Again I'm no expert on these product, I just threw spreadbetting out as a possibility, and responded to the leverage issue as I am conversant with that through futures, options and margin trading. Sabretoothtigger is more familiar, as recently I have been asking him about SB. That said I'll share my opinion, and if it's incorrect hopefully someone will correct it.
In the first quote I find a little odd that he says,

it is technically a position against another trader

Either it is or it isn't, technically is usually put into statements like that to suggest that it's a little more complicated than that, and as they say "the devil's in the detail" so I'd want to know a little more.
On spreadbetting I agree, you are taking a position against the SB shop, however then he goes and contradicts himself by talking about "hedging" Whenever you hedge something your interest in what it does afterwards diminishes relative to how fully you hedge. For example, if I am an SB and you bet £10 per point on NG, this creates a synthetic position of 1000 shares, if the stock rises £1 in price you will make £1000 less the spread from me, and at this point it is obviously in my interest if the stock goes down. If however I fully hedge the position by buying 1000 NG in the market, it no longer matters to me what the stock does as a £1 rise in share price will make me £1000 less the market spread, since the market spread is less than the spread I quote to you I will make the difference.

Obviously SB do not hedge every position fully, internally or in the market, there is no need, due to another important fact. That being, as numerous studies have shown, somewhere around 80 -90% of amateur traders attempting to make money short term in the market, lose.
The author of that piece whilst not outright stating it seems to be suggesting that due to their interest in price moving in the opposite direction to which you are betting there is likely to be something sinister going on to ensure that you lose. I would suggest that where statistically 80 - 90% of these people are going to lose anyway, why do anything.

The second quote, "Price taker v Price maker" is also true, though it's a somewhat fanciful concept. Such a thing is only really an advantage where there is a very wide spread. Solution, don't trade instruments with very wide spreads.

The final quote is also true, as I understand it, though I have no idea how prevalent hedge funds are in the world of cfd's. It is a point worth bearing in mind, it is a hazard for all types of trading, but may be exacerbated with SB's.

Tax is not a worry, as I don't think I am going to be making >10k profits, atleast not this year or next. I don't feel comfortable buying/selling on high leverage, and I like tradetime's suggestion of keeping a related account fully funded.

Yes I can understand that, while tax is my primary interest in SB I have suggested it to people with small amounts of capital due to cost advantage. Most brokers in the UK offer a flat fee, rather than a per share cost, this tends to suit people buying large amounts of shares in one go as the fee translates to a very low "per share" price whilst for people buying a small amount, or legging into and out of positions in increments it translates to a high "per share" price.

Example: a round trip trade on NG, (buying and selling) with iii

100 shares will cost £10 to buy and £10 sell = £20 + 0.5p market spread. Total £20.50p (we'll ignore stamp) The stock must rise 20.5p before you can break even.

If however you buy 1000 shares, the cost is the same, but the stock only needs to rise a shade over 2p per share to b/e

£1 per point SB (synthetic 100 share position) costs the spread which at the moment varies between 1.5 - 2p on the provider I am looking at. which translates to a cost of £1.50 - £2.00

As for leverage, remember, a company may provide it, but you determine how it is used.

I wonder if CFDs can be held within ISAs? I understand, we can have CFDs within SIPPs. But, I don't have any SIPPs at the moment, and not considering one.

To the best of my knowledge CFD's are not eligible to be held in an ISA.