Spread Betting is cheaper than holding shares!

Ark_Welder

cepheus wrote: »

WARNING...

Many Thanks.

Ark_Welder

cepheus wrote: »

Of course stop losses can be a double edged sword. It is always safer to treat a running loss as being a real loss. Your bank account only consists of electronic numbers until you realize it!

An advantage of using stop losses is that the maximum possible loss can be determined from the outset. So to fully cover a position less of the cash reserve is required. This would allow a position to be taken in another share or instrument - again with a stop loss. Always fully covered, though. Returns are then dependent on two outcomes, which should mean a reduction is risk - possibly at the expense of performance if the first share does perform as desired.

The downside to this is if slippage (gapping) occurs, so a guaranteed stop loss may be desirable - although the costs will have to be factored into the equations. Hopefully, the word 'guarantee' is also an accurate description and there aren't any get-out clauses in the terms and conditions - not saying that there are, just something to be confirmed.

cepheus wrote: »

What about share nominee accounts don't they have the same problem?

Nominee accounts are a separate legal entity to a brokerage and so are safe from any unfortunate circumstances that might befall the brokerage. Nominees exist for this reason, i.e. protection of client assets.


+++

Spread Betting: a financial instrument that applies nine hundred percent leveraging. Make sure your positions are fully covered.

cepheus

Ark_Welder wrote: »

Nominee accounts are a separate legal entity to a brokerage and so are safe from any unfortunate circumstances that might befall the brokerage. Nominees exist for this reason, i.e. protection of client assets.

I thought we were referring to the instrument/company we are gambling/investing on not the spread betting firm itself?

All private investors who open spread bets are protected by the Investors Compensation Scheme which cover the spread betting firm going bust. Bear in mind, to minimize tax liability, many investors are lured into dodgy offshore funds which are not covered!

Ark_Welder

cepheus wrote: »

I thought we were referring to the instrument/company we are gambling/investing on not the spread betting firm itself?

All private investors who open spread bets are protected by the Investors Compensation Scheme which cover the spread betting firm going bust. Bear in mind, to minimise tax liability, many investors are lured into dodgy offshore funds which are not covered!

I was thinking that your point was in response to Iron Wolf's bit about the spread betting company going bust. Sorry if I misunderstood that:

AND if the spread-betting company becomes insolvent you could lose your entire position.

JamesU

Cepheus calculator (including interest on uninvested capital, from link in #1)
https://spreadsheets.google.com/spreadsheet/ccc?key=0AhecKCkzXZPvdEl2TlVXSjFiSFdfRkVGNU1iM2ZLaHc&hl=en_US#gid=0



Equivalent £s per point for equivalent share deal



Motley data in links below (excluding interest on uninvested capital, and with %Libor = 0.6%) to compare with calculator above:
https://spreadsheets.google.com/ccc?key=0AqmSKN_6SGtqdGo1bzZoUnZucG5KZ1NmY24xWlhNWkE&hl=en&authkey=CIH899UN#gid=0
http://www.fool.co.uk/news/investing/2011/01/26/share-dealing-vs-spread-betting.aspx?source=isesitlnk0000001

JamesU

Old question: sorted in post #27 below.

cepheus

JamesU wrote: »

Cepheus, I am getting really frustrated with the numbers.

In your data set (variable number of trades per year) and other data using the same input variables (cost of SB vs shares over time, Motley Fool last year) there is a discrepancy I cannot figure out. For say an approx £10K trade such as Sabre mentioned, on your chart for a single round trade in a year this is £50 in favour of spreadbetting, whereas on the MF chart it is £260 in favour of sharedealing.

What am I overlooking here? Any ideas?

Yes it is £50. 1 round trade per year £10,000 The Motley one inspired me to do this one partly because it only compared relative costs of any individual trade rather than relative costs per year.

I checked a few numbers against the Motley one before I posted the OP. For equivalence to your example and the Motley numbers set the following in the inputs, remenber to set the size of share dealing account to £10000. I have temporarily done this in the spreadsheet link and filled out the table. (PS The Motley one seems to assume everything is borrowed for the SB case so Margin needs to be set to zero for equivalence)

Input Variables
Share dealing fee £ 10
Stamp Duty % 0.5
Additional Spread for SB % 0.2
SB Financing interest % 2.5
LIBOR Interest % 0.6
Margin required% 0
Interest on Savings % 0

Size share dealing account £ 10000

PS how did you manage to post the table?

The Motley also one asked if someone could make up another to allow for the interest you could make on the remaining 90% not deposited at the spreadbetting firm. Mine does this. At present interest rates, this effectively cancels out the interest on the borrowed money.

JamesU

cepheus wrote: »

PS how did you manage to post the table?

Clicked on your google doc link
Screengrabbed the document in Firefox (screengrab of "selection" needed rather than the whole frame)
Saved as jpeg to desktop
Uploaded to photobucket account (free)
No attempt to modify document further
Click on IMG code of the jpeg in photobucket and copy code
Copy IMG code to reply message in MSE
Preview to see jpeg, check ok, then post it

Worth the effort with graphs and charts on threads sometimes, definitely worth it here so OPs see what you are discussing.

JamesU

cepheus

Something else I should mention, the spreadsheet has a portfolio total at the bottom, if looking at an individual round transaction it will have to be set to the same since it assumes you pay interest on all of this when Spread betting. If you think it would be easier to do an individual round transaction I could have a crack at that, in fact that was my original version.

I better change it back because it doesn't make sense with the OP. I will try to do the equivalent to the Motley fool one on page 2.

JamesU

Finally understood, thanks. Yes, your calculator is spot on relative to MF with the changed inputs suggested e.g. reverted to -£260 per year on £10K fund size = £10K portfolio. If you can post charts yourself, will delete the old ones in #26 anytime you want to avoid confusion.

Definitely would also be really useful to have data depicted as a single round trade over say a year with a £0 - £10K fund size range. More in keeping with what OPs might do practically. Then can see how % Libor, % margin and % interest effect this for a given fund size, also interesting to see how Libor/spread variations impact costs over the time-frames chosen for SB.

Excellent stuff.

JamesU

cepheus

I have inserted a saving per round trade sheet in the spreadsheet, with a default to the Motley Fool parameters for a check, so remember to adjust the Interest at the bottom before using.