Spread Betting is cheaper than holding shares!

jamesd

cepheus wrote: »

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.

A product where you can't lose more than you paid to buy the product is less risky than one where the potential loss isn't capped.

Though for products like SG92 there's quite a lot of capital at risk.

cepheus wrote: »

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

Agred. These two are also covered by FSA complex products rules, requiring a knowledge test before you're allowed to buy them.

cepheus

jamesd wrote: »

A product where you can't lose more than you paid to buy the product is less risky than one where the potential loss isn't capped.

Though for products like SG92 there's quite a lot of capital at risk.

Agred. These two are also covered by FSA complex products rules, requiring a knowledge test before you're allowed to buy them.

Risk isn't measured purely by how much you can lose, but also by expenses, gearing etc. You may have bought multiple options or warrants anyway.

Spread betting is (or can be) capped, you can choose a guaranteed stop. In most cases if your deposit isn't enough to cover the margin you will be stopped out without any further loss.

Ark_Welder

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

First things, the reference level is 5900 and not 5700 on this particular product. It is a capital-at-risk structured product that also has counter party risk. If the index should rise by 20% then you would only get 8.5%. No dividends either.

EdGasket

When you buy a share you buy it at the current price irrespective of how long you intend to hold for. When you buy an index or share spread-bet you are buying at what the expected price will be at the end of the term e.g. in 3 months or whatever. Thus in a normal market with shares expected to rise a little on average, the market price for a share purchase might be 99p-101p whereas for a spread bet might be 102p-105p. So assuming the share does in fact rise a little, you would have a gain if you had bought the shares but not with the spread bet unless the rise in share price was more than expected at the outset.

Spread betting is gambling; Buying shares is investing.

cepheus

Have you read the thread Ed, it allows for all that. Remember there are rolling bets which mirror the market, and are cheaper to buy after allowing for stamp duty over most periods. See the spreadsheet I posted.

Buying shares is gambling as well, unless for some reason unknown to me returns from shares are guaranteed to exceed inflation over a practically useful timescale, and the Japanese market doesn't convince me they will.

atush

I suggest, if no one else has, (because TBH I can't be bothered to read this Whole thread from the beginning lol)

That spread betting, ie gambling, like contracts for difference/selling short etc basically things hedge funds do.........actually emphasises and inflates these sharp drops, these sharp rises, this volatility. As They are who the computer trading programs were made for. And who trade in such volumes at end of day, before opening.

They don't necessarily change the direction of the market, but they do increase the volume and the perhaos the sentiment as they increasevolatility and therefor can increas panic in the smaller personal investor.

What do you think?

property.advert

The (very) simple rule of thumb is spread betting for very short term, CFDs (and the ilk) for medium term (dependent on funding rate) and then outright equity for the longer term.

Fairly simplistic maths to work out if you understand where the funding charges and commissions / fees come from.

What might worry some investors is that the historic business model of the spread betting / CFD etc. business being essentially a funding business does not really work anymore. Whereas they would be near fully hedged, this is simply not profitable enough and some I know of are betting, for that is all it is, on the back of successful clients !

rockitup

With some spread betting companies (i.e. IG Index) you can bet on index, share prices etc for 2 or 3 Quarters ahead. There are even Annual bets on FTSE, DJ etc, of course they all come with a wider spread.

Personally I find these suitable for betting on indices and even sometimes will risk a bit on the leveraged ETF's (even though leveraged ETF's are more designed for day trades)

A few years ago I learnt the hard way, losing almost 6 month's profits on a series of bad bets in just 1 day, but that was down to lack of experience, panicking and trading too much per point for my account size (poor money management).

I also do hold some ETF's and FTSE 100 shares for long term, but spread bets keep me interested and they have another good point.... No currency risk or exchange rate conversion fees (i.e. betting on foreign ETF's , stocks and commodities/precious metals where betting £'s per point movement) with none of this 1.5% FX rate charge on each buy or sell with the likes of HL and others. I know the currency risk can work for you as well as against you but I would rather just stick to not having to factor in the move in GBP/USD as well.

In my opinion a good money management spreadsheet is probably one of the most useful bits of kit to start with whatever size of account you trade with.

cepheus

property.advert wrote: »

The (very) simple rule of thumb is spread betting for very short term, CFDs (and the ilk) for medium term (dependent on funding rate) and then outright equity for the longer term.

Fairly simplistic maths to work out if you understand where the funding charges and commissions / fees come from.

What might worry some investors is that the historic business model of the spread betting / CFD etc. business being essentially a funding business does not really work anymore. Whereas they would be near fully hedged, this is simply not profitable enough and some I know of are betting, for that is all it is, on the back of successful clients !

The precise figures are indicated in the spreadsheet (please read the header, no need to read the entire thread) and at the present low interest rates this is not necessarily the case. That was the point of starting this thread but it is not sinking in. The title is not an opinion but based on calculations. Feel free to criticise them objectively, but please don't use folklore.

For example for the figures used in the spreadsheet which I think are approximately correct for most companies, if you buy and sell £50k worth of exposure just once during an entire year you are still slightly better of with a spread bet.

The only issue of note I have seen elsewhere in this thread is that some SB companies only reimburse 90-95% of the dividend, this is not allowed for in the spreadsheet.

With regard to bankrupcy risk, spread betting companies are covered by the same depositors guarantee scheme as share brokers. However, this is limited and for larger exposures you are only putting up a fraction of your exposure with SB so surely the risk is less?

Biggles

EdGasket wrote: »

When you buy an index or share spread-bet you are buying at what the expected price will be at the end of the term e.g. in 3 months or whatever.

SB companies don't predict future increases, the reason the forward price is higher is because it includes a financing charge. If you buy a DFB (daily funded bet), you buy at the current price but pay an interest charge each night.

cepheus wrote: »

The only issue of note I have seen elsewhere in this thread is that some SB companies only reimburse 90-95% of the dividend, this is not allowed for in the spreadsheet.

I also noted that stated earlier in the thread, but my experience (with IG/PureDeal) is that I always get the full amount quoted in the company report, to the penny.