Spread Betting

MoneyMan01

Given the tax benefits of this, has anyone here used spread betting to create a similar “Global All World FTSE” holding, as you would in a GIA, but in Spread Betting terms?

I’ve been reading up on it to get a better understanding, and I understand you enter at a buy price, and if it goes you’d benefit, lose if it goes down. 

In theory, could you make a purchase, as you would in a GIA, then you “cash out” in say 10 years time at a higher price than what you entered, and that would be your profit?

Anything I’m missing or misunderstood?

masonic

It would be very costly to hold a 10 year spread bet. Have you explored the daily overnight funding charges associated with positions you keep open?

MoneyMan01

Ah, that is the one thing I noticed as being a potential downside. 

I haven’t created an account on a platform to check.

Appreciate it’s probably difficult to answer, but what are the average overnight charges on a “global all world” position (% wise)?

masonic

You can find details of the charges with worked examples on provider websites. But as a rough guide they can range from a few pounds to a few tens of pounds per day if you are betting a small number of pounds per point on an index valued in the low thousands such as FTSE100 or S&P500.

In other words, the index must go up by at least a few points per day on average for you to break even. The S&P500 has gone up by an average of 1.3 points per day over the past 5 years, while the FTSE100 has gone up by 0.5 points. So in both cases you'd probably still be in the red had you invested 5 years ago. Plus you may have faced margin calls during the pandemic.

Spread betting is mainly for those who think they can time the market and make a quick buck during a crash or boom. They are also used by those who don't want to sell investments, but want to reduce or remove exposure to their investments by holding a short position.

MoneyMan01

Do you have a link at all where I could take a look?

I also saw a “lower charge” option where you purchase an expiry, so an example being you could purchase “S&P500” with an expiry in November. So, does that mean a 3 month purchase, hoping it increased?

A 3 month stance obviously isn’t something you’d normally do with investing, so I wonder if they have the same expiry “lower charges” for years out, instead of months?

This does have tax benefits, but clearly has other risks and charges.

masonic

I'm not here to have any part in someone else losing their money, so I'll politely decline on providing links.

A position with an expiry means you have until then to close out (hopefully at a profit) or it will close out automatically. This may mean you lose more than you invested and will need to pay the provider what you owe.

MoneyMan01

I just meant on a providers website for a S&P500 as an example, so I can get an idea of costs. Don’t worry, no money is being parted with. That never happens until I 100% understand what I’m dealing with. 

Have you personally had experience with spread betting?

masonic

IG is a well known provider who offers this sort of thing. You should not find it difficult to find the information you need there.

I've no personal experience. It was something I looked into a long time ago as a way of cancelling out exposure to a particular market in the short term, but decided it was too risky. There are loss mitigations such as placing a guaranteed stop loss on a position, but again this would be costly for a long term position.

MX5huggy

If you had placed this bet on the Nikkei 225 on 08/12/1989 what would have happened? 

flaneurs_lobster

IG (and I'm sure other platforms too) allow you to trade with a "simulator" account to get a feel for playing with real money. This should give you an idea of the charges involved.