Spread Bet as an Index Tracker

musehead

I've been reading a couple of articles online about setting up a spread bet to mimic an index tracker, thus giving you a tax-free index tracker and the ability to hold the capital in a seperate high-interest savings account.

hxxp://www.financial-spread-betting.com/Spread-tracker.html

hxxp://www.learnmoney.co.uk/spread-betting/news-aug-1.html

It seems the only downsides of doing this are the spread, the cost of rolling over the bet every quater (minimal apparantly) and the inability to offset losses against capital gains elsewhere. For someone like me with no other investments, it seems like a really good idea! Since you can earn interest on the capital, it seems that you'll make far more money doing it this way than buying a normal index tracker.

Does anyone here do this or have any opinions on it?

[Deleted User]

I think you pay something like 0.15% per day to administer a spread bet, thats 54% a year and the ftse 100 has gone up 5% in the last 6 years.


hmmm

musehead

I'm not aware of any (daily or otherwise) cost apart from that of the spread itself.

[Deleted User]

Dont play with things you dont understand.

musehead

I'm not - that's why i'm asking for advice!

[Deleted User]

There is a cost, I dont exactly know the ins and outs either. But I know its not worth doing.

zzzLazyDaisy

http://www.capitalspreadspromo.com/learn/

You can have a play at spread betting here, using their simulator, with no risk.

If you get the hang of it, barclays stockbrokers give a free £100 deposit when you open an account (do an MSE search for more info).

But be careful, you can lose a LOT more than your stake unless you put a guaranteed stop loss on your bet. You have to have money to play with that you don't mind losing.

jessicamb

Theres some more information about the freebies on offer from the spreadbetting companies and a little about some finspread terms here.

Financial spreadbetting introductory offers

Be careful though - it is risky

FelOn_2

zzzLazyDaisy wrote: »

http://www.capitalspreadspromo.com/learn/

If you get the hang of it, barclays stockbrokers give a free £100 deposit when you open an account (do an MSE search for more info).

£150 at TD Waterhouse :T

Browntrout_2

You can buy, or sell, most indices on the cash market, so there is no expiry rollover every quarter. With the FTSE100 you can trade it for two ticks when it is open 8:00 to 16:30 five days a week.

So at 6289 cash, you buy at 6290 and sell at 6288.

For £1 a point you need to provide £50 of margin.

I've never considered this so let's work an example;

If you invested £30,000 in an low cost index tracker, it might cost you ~1% fees, approx £300. If the index grew 10% you'd hope to have £32,700. Showing a net profit of £2700.

If you tried to replicate this with spreadbetting I think you'd need to Buy £5 a point, so if the market went up 10% or 629 points, you'd profit 5 times 629 = £3145. You would need £250 margin so could keep most of your £30,000 on deposit or in some very low risk environment.

However the rub is the margin. If as in April 2006 or August 2007 the market drops 10% you need to cover that, so at any stage you can be showing a loss of £3000, say it keeps going down and you're getting emails every hour and phone calls to provide more funds, another 10% another £3000. Offshore highinterestbankingabroad.com seeking emergency funding who'd have thought it, the market dives and by lunchtime they want another £1500, you pay up and close out. Down £7,500. Okay though still got £22,500 on deposit.

However 14:30 New York DJIA opens and shrugs of the FTSE loss and so the FTSE recovers 100 points, then goes no to rise 1000 points in the next quarter.

So spreadbetting would work with discipline to ride out the losses and provide margin cover. Also not get greedy and try to day trade it, or over trade it, which is what they rely on you doing. On the other hand, Index tracking, buy and forget, hope the market goes up eventually, and barring depression it will.

I would sum it as the difference between Speculation and Investing.


I personally prefer a portfolio of managed funds.