Wednesday, 7 September 2016

Spread betting for the masses.

September is a remarkably shitty month for many. Not as shitty as November which has to be up there as one of the grimmest months of the year, but just the thought that you have 2 months of inexorable approach to November after returning from a summer holiday makes September shitty. And that’s without the run up to year end nonsense that will have kicked off with appraisals, KRAs, fawning, backstabbing and general Roman Senate behaviour that is booting off in the glass corner offices of Investment banks. Bonus allocations to management are being decided along with debate as to which tiny teaspoon to use for staff bonuses. Sorry folks, I feel for you. Sort of.

But I think you have to have been on the inside to be able to be on the outside to be able to look back in and be glad you are out. I say this because as my own sanguine attitude towards the glaring hypocrisies of city life (the way the regulator regulates and management manage) only grow, the world around me still appears to consider the wheelings and dealings of dealing in financial markets a holy grail to wealth, happiness, and, believe it or not, intellectual respect. Cough cough.

A wall of cash has pushed personal investment into higher risk products and taken the owners of that wealth down a rabbit hole of financial discovery that could have been penned by CS Lewis. Whilst banks cannot offer the simplest of products to their client base, without carrying out Know Your Client inquiries using anal probes, spread betting firms are happily engaging in providing sharp objects to financial 2-year-olds. The rise of the binary option as a punting tool has been remarkable. The ability to bet on financial markets via traditional institutions has been squashed yet the betting industry is stepping into its place. Very odd. And I still don't understand why any profits on a spread betting account are tax-free yet the same trade through a traditional market is taxed.

The tax advantage, the technical ability to replicate what to all intensive purposes looks like a professional dealing screen and the  underperformance of cash in bank accounts is handing Joe Public all the tools to dress up as a professional city dealer and..... be taken to the cleaners.

The playing field just isn't flat. Spread betting companies may offer exceedingly good spreads in their shadow markets, but look at the funding costs and roll over charges and it all adds up to a tax on playing. The other fundamental truth is that Joe Public just isn't very good at trading either. The proof? The fact that most spread betting companies don't bother hedging any of their client business. Clients tend to lose. This could also be the reason that spread betting profits aren't taxed. Tax deductible losses would exceed taxable profits.

But the lure of the casino is huge. The pub bragging rights on making a buck on long Eur/Usd just seem so much better than saying you won it on roulette. But the overall odds for most punters are similar. With the rise of the punters comes the rise in the financial snake oil salesmen. The 'follow my foolproof way of trading (though if it's foolproof then why the heck am I telling you)' sites. Twitter is alive with promoted snake oil tweets. But there is money in it as I am afraid to say it, the easiest target market to take money off are the not the cleverest. It's depressing to realise that if you want to make a quick buck the the easiest way to do it is to leg over someone not as smart as you.

I can cope with trying to win by coming up with a trade before anyone else acts on it, but to suck folks into a casino of rigged tables seems a little harsh, especially when gambling has been banned at banks and institutions. And gambling it is. Binary options? How many real world exposures find binary options to be the natural hedge? Apart from as ahedge against the other binary options you already bought.

I passed a slot machine arcade in a coastal town in England last week and wondered how long it would be before all the various gambling machines within it would be replaced by dealing screens with betting on financial markets. Why not? A live stream of SPX index prices to bet on is much the same as the higher/lower electronic card games. In fact....

Emerging Markets. They all moved but you got the wrong one. 

Short carry. It never drops more than you put in 

Brighton Pier at 1.30pm on NFP day.

Binary Options - 7 ways to lose faster.  

FOMC - It's always coming around but no winner.

The new precious metals dealing desk .

Yet there is a place for the high octane of risk taking that can be achieved using these facilities. I use them to adapt risk in longer-term underlying portfolios. In fast markets where liquidating underlying assets takes two or three days and involves larger spreads, then a spread betting account is a way to hedge.

But probably the greatest reason I use them is because I am finding that funds just aren't what they used to be. They are either so balanced they don't add any value, or they are so specialised they have passed the risk of asset class selection back to me. Or they are so hamstrung by their own risk metrics that anything fun gets chopped at bottoms or profits taken too early on rallies. And then there's the ultimate curse. You ride out an investment in a fund through thick and thin and just when the market is about to bottom the fund closes down because it isn't performing and hands you what's left of your money back - Looking at you Rennaisance Sub-Sahara and Rennaisance Africa.

I want a good old fashioned broad spectrum punting fund that has balls and is run by someone who is over 21 and doesn't have an ego. Or an algo. And understands politics as much as economics.  And doesn't care what fund consultants think. Oh, and being right helps.  Is that to mich to ask? Of course it is, but answers in the comments section please.

Yours, mine, I is a geezer dealer 'cos I've got a spread betting app on my phone.


Stop Press! - Just out in the FT about spread better CMC markets.
CMC Markets shares slide 13% on worst day since IPO
I hope that wasn't my fault.


lucky said...

Binary options are a scam. Most providers that offer them are unregulated or regulated in shady jurisdictions like Cyprus. But even if a binary so called broker is legitimate in most cases you have better odds of making money from betting repeatedly on the fall of a 50p coin than from binary options, where a sustained return requires a success rate of better than 55 per cent... (massive odds against you).

However, I would disagree with you that spread betting doesn't have a role to play - for instance no stamp duty so ideal for trading short term shares (you would need to hold on for months for financing to overcome stamp duty) and ability to trade indices and foreign exchange... And its a good way to leverage your funds when used responsibly...problems only arise when you leverage yourself to the tilt. And its not only individuals that take short positions - respectable hedge fund managers like David Einhorn [Greenlight Capital] also take long and short positions and has experienced very healthy returns over the years. Yes most traders lose - that's why its treated as gambling and that's why winnings are tax free but you cannot offset losses. Spread betting for me is just another speculative trading instrument. If you treat your trading as more of an investment you can use cfds which are basically like spread bets but then you can offset losses against taxes for future years (but then gains are taxable which isn't bad at all a deal!).

The UK is a very sophisticated market and offers all kind of vehicles - ETFs, ISAs, Sipps - all have their uses and tax advantages so why exclude one?



Polemic said...

Hi Andy,

I don't think we have to disagree. As I said in the part under the pictures, spread betting does have some very useful features which I do indeed employ.

Skr said...

Hey Pól, you might like this...

Fcuk the begrudgers.

Unknown said...

Because of the tax advantages I was thinking of using a spreadbetting account for non-leveraged buy and hold investing. Boring stuff, like indices. It seems this is not possible though. Even if you have the full notional sitting in your account, they still charge you financing. Is there any way to avoid this?

Unknown said...

Because of the tax advantages I was thinking of using a spreadbetting account for non-leveraged buy and hold investing. Boring stuff, like indices. It seems this is not possible though. Even if you have the full notional sitting in your account, they still charge you financing. Is there any way to avoid this?

Robert in Chicago said...

On the off chance that you miss it:

Hotairmail said...

Every government comes in and looks at the taxation of spreadbetting companies and their speculators who seemingly avoid CGT. But when they look at their numbers (again), they find that 90% of punters lose money and it makes much better sense to tax the profits of the financial services aka spread betting firm as though it were a betting company - leaving it to them to take the ire of traders for costing so much to deal.

12yo HFM said...

"and is run by someone who is over 21" Do you have to be quite so restrictive?

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