Best share spread betting account?

sabretoothtigger

£66 will let you buy £2200 of shares

That is not literally, but certainly financially you can owe that much. If Royal Dutch Shell blew up a rig like BP did and their shares went from 22 to 0 because the Gov seized all their assets then yes you owe them all that money and the Sb company will come after you.

However almost every company will close you out. A 'Margin call' , it means you will not be loaned 2200, they will call for more security as soon Shell share price starts to drop.
That could mean you are forced to sell 1 minute after buying, this is why they make money

However we can go to extremes, over night you hold Shell. 4pm stocks finish trading by the next morning when it opens Shell is worthless, you could owe them the whole amount.

This possibility is called hot money, large sections of shares are never fully paid for. Hence negative feedback, scare tactics, herd dynamics or a stampede is always very possible. Even if Shell has been successful for years dont assume it cant happen.

Ditto for anything, pure meteors of gold could crash the price tomorrow with its excess supply.

jamesmorgan

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 can lose a lot more. This is because spread bet accounts work on the concept of margin. Let's say you have £1000 in invest. If you want to buy a FTSE100 share you would need to put 5% deposit into the SB account. This is your £50. This enables you to buy the equivalent of £1000 of shares. The rest of your money can be invested in a high interest savings account. If you find a rate of 3% this would offset the interest charges from the SB company so your total costs for buying and holding a FTSE100 company is the spread (typically around 0.4%). If the share price falls you would need to move some of your money from the high interest account to the SB account to maintain the 5% deposit. If you don't do this quickly enough the SB company would close your position. In practice you would probably have a small buffer in the SB deposit so that you didn't have to continually monitor this (I usually have a 10% deposit, which allows for a 5% fall across all my shares before I need to transfer funds).

Now it is certainly possible that shares fall quickly, especially if you don't have a large portfolio, and all your deposit is used up so that you owe the SB company money. If this happens they would chase this in the same way as any other debt. Note it is also possible to put the £50 in the SB account without having the remaining £950 capital that you are actually investing. This is a high risk approach - and from everything you have said so far I would strongly recommend that you don't do this. If you only have £50 to invest then spread betting is probably not for you - it would be much better to invest this in a low cost tracker.

I think at IG Index the lowest bid on a FTSE100 share is £1/point. If the share price is £5 (fairly typical) this equates to a purchase of £500 worth of shares. I would recommend that you have a portfolio of at least 5 shares (preferably double this) so the minimum amount of capital I would suggest you have before using spread betting is £2500.

khampson

Ok now I have read up, had a play and I dont think its for me after reading everones advice. Ok now for my next question. What other investment options do I have? Someone have said unit trusts and trackers but where do I go for them? I also read something about halifax share builder. I am unfamiliar with all the options. So just to clarify I am wanting a investment where I can feed money in which will be around £20 to £50 a month. I have had a go at peer to peer and did have some profit out of them bur now ratesetter is offering rates just above banks. I do have a littlr money in funding circle and I may return if all other options dont seem to suit me. What are your thoughts?

Thanks Keith

plunt

hi all,

thought i would put my thoughts down. I moved away from holding stocks 1-2 years ago. (apart from filling up my stocks and share isa each year)

Logic behind this is that I found it cheaper even in the long term. Current rate im getting on my savings accounts are 3.2% instant access, 18k (lloyds 4% vantage) and regular savers (4%+) . Therefore taking the lowest value 3.2%, and assuming my 20% tax rate I earn roughly 2.56% minimum in interest.

So my conclusion was to use cmc markets. I will start by saying compared to ig index, i dont like their "looks" of platform and the choices are fewer. But this wasnt a deal breaker, as if you are trading to "look" cool with a platform then best of luck!

So why cmc markets. Firstly their overnight financing cost. they use reuters zero base rate + 2%. currently that reuters rate has ranged from 0.35% to 0.59%. This means financing rate is normally around 2.5%.... Now look at IG index or most others, their rate is base rate (0.5%) +2.5%. coming in at around a total of 3% give or take depending on libor rates.

Now remember what i said about my interest earned in back accounts, this now nets off the interest paid, and I sometimes even make profit as my cost i pay in financing is more often than not lower than the interest earned (you could boost this profit by putting into fixed accounts)

As mentioned previously in the forum, i use this as a tool and ring fence my total exposure. therefore not actually leveraging.


so... some of you out there want to jump in and say ... "but what about that deposit amount that you get charged interest on, meaning financing cost is actually higher"

Now here is where cmc markets helps again. The method of calculating financing cost

Most providers charge you

(base rate +2.5% ) * position value = total cost for the year

CMC market does the following

(Reuters rate + 2% ) * (position value - funded amount)

Not that they arent charging you interest on the total amount, only the unfunded amount. Meaning IG index and other are actually charging you even more in financing that you actually think at first!


The other benefit of spreadbetting in general, no matter what platform you use, is dividend handling, although i havent managed to find one with dividend reinvestment (wow that would be awesome!), they do pay out dividends on ex div date rather than div payment date. Meaning you often get the cash 1-2 months early! And surely that needs to be factored in when considering interest earned! (and tax free!)


So, those are my opinions and thoughts, please let me know what you all think, and if you have considered all the above!

Regards

Daniel

PS: yes spreadbetting platforms still look cooler than regular sharedealing accounts!

khampson

I do bank with halifax so what are your thought on Halifax share builder? I know its shareand you still need to watch what your buying but it says £1.50 only per trade but its only on a set day each month?? If I buy shares into a company at say £25 a time minus stanp duty and £1.50 is this a better idea than spread betting?

Keith

plunt

khampson wrote: »

Ok now I have read up, had a play and I dont think its for me after reading everones advice. Ok now for my next question. What other investment options do I have? Someone have said unit trusts and trackers but where do I go for them? I also read something about halifax share builder. I am unfamiliar with all the options. So just to clarify I am wanting a investment where I can feed money in which will be around £20 to £50 a month. I have had a go at peer to peer and did have some profit out of them bur now ratesetter is offering rates just above banks. I do have a littlr money in funding circle and I may return if all other options dont seem to suit me. What are your thoughts?

Thanks Keith

you can do regular investments of min £50 with hl

http://www.hl.co.uk/investment-services/vantage-service/regular-savings

halifax lets you invest in any stock you want at £2 comission. but careful as not sure if you still have to pay £11.95 to sell! and you dont get to choose the exact time to buy the stock

http://www.halifax.co.uk/sharedealing/investment-options/ways-to-invest/regular-investments/


Personally i would either wait till you have built up greater amounts, or i would go with someone like hl and build up a pool of funds that you can plat around with and get a feel for!

jamesmorgan

plunt wrote: »

So why cmc markets. Firstly their overnight financing cost. they use reuters zero base rate + 2%. currently that reuters rate has ranged from 0.35% to 0.59%. This means financing rate is normally around 2.5%.... Now look at IG index or most others, their rate is base rate (0.5%) +2.5%. coming in at around a total of 3% give or take depending on libor rates.

Hi,
it sounds as if your approach is very similar to mine. It is interesting to see your comments on CMC markets. My decision to go with IG Index was largely based on their size (and hopefully financial security), although I note that CMC aren't exactly a minnow.
For info, all my previous stock trading was done within an ISA. I transitioned to using spread betting a year ago simply to save costs. However, as my funds were within an ISA account I couldn't invest them directly in a high interest savings account. After a fair bit of research I decided upon a short dated investment grade corporate bond ETF (IS15). At the time this had a yield to maturity of 5.2%. Capital growth of this ETF has done very well over the past 12 months and it has grown by an annualised 8%. However, as a result its yield to maturity has fallen to 2.8%. This is no longer quite enough to cover the spread bet interest charges so I am currently considering other options.

James

IronWolf

CFDs are an alternative to spreadbetting and will allow much less leverage. You can open an trading account with brokerages but need more capital than spreadbetting.

All professional traders use CFDs, none spreadbet. That tells you all you need to know about spreadbetting!

plunt

i disagree with cfds, almost all cfds have minimum buy/sell commision. therefore pointless to use on small amount

as for leverage, you can get just the same amount, but sometime you get to select your leverage....

the way in which cfd's work means they are taxed.... both incur typically the SAME financing rate....

cfds are often used instead by "professionals" because spreadbetting is banned in many countries.... or spreadbetting doesnt have the tax advantage like it does in the uk. Spreadbetting firms make their money of spreads, where as cfds have to mirror the exact market price.

anyways the point is that it is not as clear cut as Ironwolf makes it out to seem


PS: technically you can get taxed on spreadbetting if that is your main source of income!

jamesmorgan

IronWolf wrote: »

CFDs are an alternative to spreadbetting and will allow much less leverage. You can open an trading account with brokerages but need more capital than spreadbetting.

All professional traders use CFDs, none spreadbet. That tells you all you need to know about spreadbetting!

In the UK, CFD's and Spread Betting are virtually identical in terms of charges and tax treatment. In other countries this is not the same. It is for this reason that spread betting is largely a UK phenomenon. The market leader for CFD's in the UK is IG Markets. The market leader for spread betting is IG Index. Both are part of IG Group. If you are investing in FTSE100 shares, in both cases you would only need to provide a 5% deposit, you would get charged 0.1% on each buy/sell, you would get charged interest of LIBOR+2.5% and would pay no stamp duty. For the average private investor there is no difference between the two.

There are, however, some subtle differences. For CFD's you get charged 0.1% commission on each trade. For spread betting the 0.1% is added to the underlying spread. CFD's also allow you to interact directly with the underlying spread and to gain price improvements. This is unlikely to be of interest to the private investor but could be of interest to a large hedge fund making £million investments. CFD's also attract capital gain tax so are less attractive to the private investor (unless looking to create some CGT losses to offset gains elsewhere).

So in the UK, CFD's are typically more used by hedge funds, whereas spread betting is typically used by private investors, but overall the two are largely synonymous.