Best share spread betting account?

Linton

jamesmorgan wrote: »

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Ultimately there is no reason why using a spreadbetting account should show any differences in returns from any other method of investing. In the current climate of low LIBOR rates, returns should be higher than direct investment as overall charges are lower.

There is a good reason. Unless I have misunderstood something spreadbetting is a zero sum game - the total of winnings equals the total of losses minus the spreadbetting company's take. Therefore on average you lose. With investing share prices can rise globally and so everyone holding shares gains.

Nomad2006

Linton wrote: »

There is a good reason. Unless I have misunderstood something spreadbetting is a zero sum game - the total of winnings equals the total of losses minus the spreadbetting company's take. Therefore on average you lose. With investing share prices can rise globally and so everyone holding shares gains.

You're assuming customers are all betting against each other, and that for one to win, other must lose. This isn't the case - it's perfectly possibly for every customer to buy the FTSE and all to make money if shares rise. The spread bet firm simply buys the equivalent position in FTSE shares from the market, so they are indifferent to whether shares rise or fall - rise, and what they lose to customers, they gain back from the shares they bought, fall, and what they lose on shares they bought, they gain back from customers. Either way, they make their 0.1% on the spread and are happy.

khampson

Ok it seems risky. Is there an alternative to sb assuming I only have £10 to £30 to save or invest. I know cash isa will pay around 3% but I am willing to take more of a risk than that for the chance of a better return.

Keith

sabretoothtigger

khampson wrote: »

Ok it seems risky. Is there an alternative to sb assuming I only have £10 to £30 to save or invest. I know cash isa will pay around 3% but I am willing to take more of a risk than that for the chance of a better return.

Keith

Unit trusts is the cheapest thing I know. I think maybe 50 a month.
Or ETF or investment trust, if you get 3% on savings you should probably take it for small amounts and spend a little interest on a book. Try the Naked Trader

jamesmorgan wrote: »

IG Index charge 0.1% premium on FTSE100 stocks. This is on each side of the underlying market spread so the overall impact is a premium of 0.2%

I would be very cautious about investing in non FTSE100 stocks as not only is the premium higher (0.25%*2) but also the underlying spread is higher. For FTSE250 stocks the typical overall spread is up to 1.0%. The key to successful investing is to minimise costs. If you invest in illiquid stocks (eg AIM) you are going to get your fingers burnt.

True true. 1 company I have is valued 6m. Goodwin spent more on his company jet then that.
Many aim stocks dont have a business exactly, no production just an idea possibly true or not.
Thats not the spreadbet company's fault though, some of them are pretty darnable equitable in their help to deal such things

Unless I have misunderstood something spreadbetting is a zero sum game

You are thinking futures, options. The idea of a price which may never exist but with a contract to buy there if its ever worth that.
Like if you promised to sell me your house for 5 mil, that contract would cost maybe 50p because its so unlikely, but if the price goes to 5.1mil then Im quids in so I buy it like a lottery ticket

This works great enmasse and with extreme volitile events, like a failed harvest. Cheap purchase relative to risk, spreadbet does not usually involve absolute risk of total loss but you can own 100 shares of Shell at £22 worth £2200 and pay only £66 deposit. If it goes up and sell that day you never pay interest and you collect the profits like 100 real shares. So the low deposit is the similarity but not the rest. (However just to confuse you can spreadbet contracts I think and etf and so on)

Contracts are sold by big firms, presumably they benefit from selling thin air in some cases. Thats for commodities most famously? orange juice futures :rotfl: http://www.youtube.com/watch?v=ZjDbJQKDXCY

You can spread bet a footy game apparently. You gain like £10 a goal scored over a draw or similar kind of things
Spreadbet is done immediately, I cant just refuse to take it up like your 5mil house.
If I buy then I do so at market prices, it relates so closely to real shares, the FSA monitor it for insider dealing

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EdGasket

For the unititiated, the difference between direct investment in shares and a spreadbet account is as follows:

When you buy shares in a company you take a stake in the company and have an interest in it's good fortune. This is positive for the company and the economy as a whole (unlike shorters). You also buy the shares at todays price and if they pay dividends, you receive those dividends. You can keep the shares indefinitely at no cost.

If you open a long spreadbet (June 2013), you will not be buying at the current price, you will be buying at the projected price in June 2013 which will generally be higher as, on average, shares increase over time. The June price will be higher by an amount equal to the expected gain of those shares in that time; so all things being equal, you will break-even in June EXCEPT FOR THE SPREAD. Now unlike buying the shares which you can keep for as long as you want at no cost, if you want to keep your spreadbet open beyond June 2013 in order to make a profit, you will have to rollover your spreadbet and pay further spread and accept a new future price, say December 2013 at an even higher price than June. Hence you need an above-average gain in a short time to make a profit on the spreadbet. In contrast, if you hold shares and the price is depressed for a while, it costs nothing to hold them until they recover in a strong market similar to what we have now.

Nobody makes a profit long-term spreadbetting without inside information period.

jamesmorgan

EdGasket wrote: »

For the unititiated, the difference between direct investment in shares and a spreadbet account is as follows:

When you buy shares in a company you take a stake in the company and have an interest in it's good fortune. This is positive for the company and the economy as a whole (unlike shorters). You also buy the shares at todays price and if they pay dividends, you receive those dividends. You can keep the shares indefinitely at no cost.

If you open a long spreadbet (June 2013), you will not be buying at the current price, you will be buying at the projected price in June 2013 which will generally be higher as, on average, shares increase over time. The June price will be higher by an amount equal to the expected gain of those shares in that time; so all things being equal, you will break-even in June EXCEPT FOR THE SPREAD. Now unlike buying the shares which you can keep for as long as you want at no cost, if you want to keep your spreadbet open beyond June 2013 in order to make a profit, you will have to rollover your spreadbet and pay further spread and accept a new future price, say December 2013 at an even higher price than June. Hence you need an above-average gain in a short time to make a profit on the spreadbet. In contrast, if you hold shares and the price is depressed for a while, it costs nothing to hold them until they recover in a strong market similar to what we have now.

Nobody makes a profit long-term spreadbetting without inside information period.

I don't think you understand spreadbetting - you are talking about buying futures. Spreadbetting allows you to purchase shares exactly the same as direct investment. You can buy at today's prices, you can benefit from dividend payments. The key difference is you don't pay stamp-duty or broker charges, but you do pay a slightly higher spread and you pay interest on any trades that you hold at the end of the day (however, this can be offset by investing your capital in an interest account). Spreadbetting is less attractive when interest rates are high, but in today's low interest rate environment, it enables you to 'buy' shares at a lower cost than direct investment.

I used to buy shares directly, but I now make exactly the same purchases from a spreadbet account and save an average of 0.5% on each trade. This may not seem a lot but due to the frequency I trade, it changes my annualised returns from 7% to 17%.

khampson

Can someone please clear this up for me. If I am dealing in spread betting and I have say £50 in my account, can I lose more than the £50?

Nomad2006

Actually, if you hold a position for more than a couple weeks you are often better off spreadbetting on futures (quarterly) prices rather than the daily markets, as the interest charge is much cheaper on futures. Again, it's a case of doing the maths to work out which has a lower overall cost to trade, you are still speculating on the price of the same share either way.

EdGasket's misunderstood how futures prices work - for a share that pays no dividends, the difference between the price today and the future price purely represents the interest charge for the amount you are borrowing on margin. It doesn't reflect any expected increase in the share price.

Nomad2006

khampson wrote: »

Can someone please clear this up for me. If I am dealing in spread betting and I have say £50 in my account, can I lose more than the £50?

Yes. You could lose hundreds, even thousands of pounds, because spread bet account are credit accounts. If you don't understand this, you need to stay away from spread betting until you do!

khampson

Thats why I'm asking. How would they collect the money? If I credit an account does it go in the red?