Spread Betting is cheaper than holding shares!

cepheus

Let me emphasise again, I am not suggesting anyone uses any leverage for spread betting in this context, always deposit any non margined money away in an interest erning account to offset the cost of any financing

sabretoothtigger wrote: »

Its how I operate myself and I talked about it on the ftse thread a few months ago. You are paying for leverage and a spreadbet firm can alter the margin they require. Barclays required 100% margin in Feb 2009 with at least 1 firm

Which firm charges you 3% overnight because I get charged at least double that. It tends to be rounded in their favour. Once Lloyds gets over 50p a share I will be charged 1p a day for every 100 shares which works out to be 7.3% apr

If you are paying 7.3% APR or forced to put up 100% margin (what interest do they pay BTW) I'm afraid to be they are ripping you off, and you need to change to a spread betting firm! No wonder the Banks can afford to pay themselves such high bonuses! Forget about the name 'spread betting' look at the numbers!

Ark_Welder

rockitup wrote: »

So is buying a house with a mortgage

Exactly. Say 'negative equity' to people and they understand that. Which is why cepheus' point about the position being fully covered is important.

rockitup

Ark_Welder wrote: »

Exactly. Say 'negative equity' to people and they understand that. Which is why cepheus' point about the position being fully covered is important.

Yes I had a bit of that NE for a couple of years after buying my first house in mid-1992. Also I have been spread betting since 2006 and learnt my lessons fast but leverage was not so much of a problem as learning to leave my emotions out of trading - I broke rule number 1

Years before that I made serious money out of leverage using Investment Trust Warrants, had one (£1k invested) that lost 83% and two more that returned £29.9k for a £3k original investment, sold up in March 2000.

With the warrants I could not lose more than my original stake so was far happier with using them rather than spread betting, I think that watching your profit/loss figures move so rapidly is scary for many new traders.
I know some that have not got the guts to take a small loss or set a stop loss and they got seriously wiped out.

I have an account with TDW which I use for shares occasionally but have been tempted to look at the Covered Warrants and Turbos to have a flutter.

To be honest though I could not start using serious money in leveraged instruments, after all it is just the same as horse or dog racing. You have to be prepared to possibly lose the lot.

jamesd

Comparison with safer choices might also be interesting:

1. covered warrants. Fixed fee paid at the start, no chance of having more liability and only the fee and possible profit subject to counterparty risk.

2. options. Somewhat similar to warrants.

Both interesting using for themselves to get the desired exposure and potentially for buying protection.

IronWolf

Another thing that hasn't been mentioned is that spreadbetting indicators dont always follow the share price perfectly, so could either increase and decrease profits/losses.

cepheus

IronWolf wrote: »

Another thing that hasn't been mentioned is that spreadbetting indicators dont always follow the share price perfectly, so could either increase and decrease profits/losses.

Some companies used to do this. Nowadays, as far as I know all prices are fixed relative to the market, and that is what the 0.2% extra spread allowance in the spreadsheet accounts for. In fact this may be too liberal, in some cases 0.1% might be more realistic.

Of course the same method can be used with index tracking with even lower spreads, but in this case the spreads with follow futures not the index.

cepheus

jamesd wrote: »

Comparison with safer choices might also be interesting:

1. covered warrants. Fixed fee paid at the start, no chance of having more liability and only the fee and possible profit subject to counterparty risk.

2. options. Somewhat similar to warrants.

Both interesting using for themselves to get the desired exposure and potentially for buying protection.

Strange that you should call warrants and options 'safer', these can be the most geared instruments of all, although your losses are limited, and it depends what type.

Once again if you place the monies not required due to thiese in a deposit account earning interest the entire package need not be considered highly geared as such, as with the spread betting example.

All the same these really are complex instuments for the novice and I would say stay well clear.

sabretoothtigger

It doesnt have to be that complex, either gold price is going up by December or not. That idea is simple enough but with warrants the price contains a premium for time.
If you bet 6 months ahead you are buying time and everyday that is worth less till its zero then you rely on being correct price wise or not (if its dead on 1600, you just spent premium for nothing maybe)

Other products are a couple from Socgen. You can bet on ftse going up or down, either you win 10 pound or nothing. Ticket price varies

And goto selftrade site and look at SG92 That is a bet which pays back 108.50 to the buyer if ftse is past 5700 in November. That seems a very cheap bet, if ftse is 5600 then the bet stays open till next nov and pays 108.5 + 8.50 again if ftse past 5700
Seems better then normal ftse tracker



Selftrade are doing a free trade account offer at the moment. Most UK brokers will not allow warrant dealing or at least covered kind, normal warrants are like shares almost

aspiration_2

sabretoothtigger wrote: »

And goto selftrade site and look at SG92 That is a bet which pays back 108.50 to the buyer if ftse is past 5700 in November. That seems a very cheap bet, if ftse is 5600 then the bet stays open till next nov and pays 108.5 + 8.50 again if ftse past 5700
Seems better then normal ftse tracker

Just learning. What happens if the ftse drops to say 5500? What will be the loss?

sabretoothtigger

Well SG92 is a special product. In this case there is no loss registered until the 5th year of the product. So if FTSE is 5500 in 2011 you get nothing, but in 2015 you would be paid 8.5% apr anyway

Technical comments
There are 5 possible cash settlement amounts at expiry depending on the closing level of the Underlying after 5 years:
1) On 18/11/11, if the Underlying is above the Reference Level 5,900, the security expires early at the £100.00 + 8.50.
2) On 16/11/12, if the Underlying is above the Reference Level 5,900, the security expires early at the £100.00 + 2*8.50.
3) On 15/11/13, if the Underlying is above the Reference Level 5,900, the security expires early at the £100.00 + 3*8.50.
4) On 14/11/14, if the Underlying is above the Reference Level 5,900, the security expires early at the £100.00 + 4*8.50.
5) On 13/11/15 (the Expiry Date), if the Underlying is above the Protection Level 3,700, the security expires at £100.00 + 5*8.50.
6) On (the Expiry Date), if the Underlying is below the Protection Level 3,700, the security expires at a value equals to the Issue Price of £100.00 adjusted for the negative performance of the Underlying. The capital is fully at risk.

https://sglistedproducts.co.uk/products/investment-strategies/product-detail/autocall/ann8136t4656/


Also since its a product not an actual ownership, the other condition is that SocGen does not go broke