Why would you spot forex instead of spreadbetting(uk)

Hi all,

Is there any reason why someone would trade forex in the uk instead of spreadbetting? The only reason I can see is to use mt4/ea’s.
Thanks
Ale

Interesting- I was just on the HMRC website ensuring that although spread betting can’t be taxed for CGT, that it also wouldn’t be applicable for income tax. I don’t think it does so I see no reason why you wouldn’t opt for spread betting…

Because you want to tell your friends your a ‘trader’ not ‘gambler’ :slight_smile:

As far as I know there is no advantage - other than that the tightest spreads ive come across for small fry guys like me seem to be at non spread betting brokers…

Conflict of interest for your “broker”.
If you win money, the “broker” loses.
Therefore they need their customers to lose in order to make a profit.
Since they control the system, they have the opportunity to cheat if they have enough criminal energy and think you won`t be able to prove it.

This is the same as a broker with the pip hunting and sniping myths. Spreadbetters, like, brokers need to have rates in line with the market (the spread betting market I mean). Variences of 1 or 2 pips may be possible but that shouldn’t affect trading drastically.

They are all regulated, they do not cheat, they may scalp your order on the real market but that has nothing to do with your order PL directly.
There is a reason to trade spot and that is commissions and spread.
The spread will ultimately mash you in this game if you are only going for 20 pip targets. It is a tough game to beat when you have a spread of 2 or 3 pips and you are not swing trading.
Swing trading 100pips + go for SB - you see anything different from the spot price, complain - they have to give you a trade correction.
Scalping then you must find the lowest spread possible…in fact if you are scalping don;t trade FX at all, trade futures where you can use limit orders to effectively do away with the spread.

I use a spreadbetting provider and I’ve not come across any irregularities at all in a year or so. They’re regulated by the FSA and their prices match out with a separate charting package I use. Order execution has been fine too in my experience.

Also the spreads are ok in my opinion. EUR/USD is fixed at 1 pip all day (including during news releases). GBP/USD, EUR/GBP and USD/JPY are 2 pips all day. I don’t scalp so I’m not really worried about a pip here and there.

Throw in tax free status and the ability to bet on stock exchanges, shares, energy markets, precious metals, etc. and I don’t really see a reason for me to switch to spot forex.

I just think people need to consider the effects of the spread more.
Let’s say you trade a 2 pip spread on cable and your target is 20 (not mentioning the people who only target 5-10pips) - that is an effective commission charge of 10%!
Really to get by living off this, the effective commissions need to be more like 1-2%

He meant comparitive to your TP level

Paddypower Spreadbetting. I think they’re part of London Capital Group’s spreadbetting network - they just use their own front-end. Both groups presumably offer the same products / spreads but being Irish I figured I’d go with Paddypower.

Some of the other spreads aren’t so good when compared to Oanda though. AUD/USD and EUR/JPY are a pip or so lower on Oanda. Some others are a couple of pips lower with Oanda e.g. USD/CAD, NZD/USD, USD/CHF. I tend to stick to the majors though so I’m not too bothered by a pip difference here and there and long term the tax benefits are almost too good to be true. I keep wondering if they’ll close that loophole some day.

Yep, relative to your TP, ie 2 pips paid in spread/commission relative to a 100-200pips target isn;t too bad but that’s swing trading. I’m sure you can get by on a bit more but it’s a bif factor to overcome when scalping if you start off every trade at -2. Think about futures trading in bonds or the indexes and then you pay a small $5 commission and you can use limit orders meaning you start at 0 - that’s a whole extra 2 pips EVERY trade you take - that adds up in the long run.
Look…2 pips for 50 pips target might be ok…I don’t have the stats to back this up but it’s pretty clear to me that anything above 5% is a big disadvantage to your win ratio.

The lowest spread is absolutely crucial.
Let’s say you trade at a round $10 per pip.
That’s $20 you give up on every trade (2 pip spread).
5 trades a week = $100
let’s say there are 48 trading weeks in the year = $4800.
Find a broker where you can reduce that spread to 1 and you immediately make an extra $2400 a year.
Anyway, you get the point :slight_smile:

Don’t think they will - the SB companies get taxed so the government gets the tax anyway otherwise you would be able to claim tax relief from your losing trades.

People forget that trading DMA allows you to do some accountancy tricks to reduce the profit so it is a balance between how much tax you think you are saving on SBing (+ whether you can overcome the spread disadvantage) and what you would be taxed - you can work it out based upon your trade size, numbe rof trades, win ratio, spread, etc. but there’s a few unknowns and changing variables in there.

Don’t get me wrong, I love FX but when it comes to commissions, futures trading is far cheaper and easier to control the win ratio / spread factors - it;sd not for everyone though.

How would a Scalper do with an ECN broker?

pretty good. I know fxopen are cool with scalping.

IMO scalpers should stay away from anything to do with FX.
Having said that spread on EU on some ECNs is around 0.8pips so they would do better than on most spot forex or SB. Yes, there’s tax to consider but people don’t calculate how much the spread affects their strategy.

Can it be done profitably - probably…but why bother when you can scalp other contracts with no spread using limit orders? Absolute minimum TPs on FX should be around the 50pip region. Maybe that’s a blanket statement but I’d like to see a FX scalpers stats to prove otherwise.

Interesting discussion and this is a good point:

but people don’t calculate how much the spread affects their strategy.

I think this ‘phenomenon’ exists because most open small accounts and the spread doesn’t ‘hurt’ when opening a position. But if anyone doubts the validity of the above statement then just do yourself a favour and open a demo account with, say, $100 000 and trade observing risk mangagement and therfore position size. You may be quite surprised i.e. being ‘down’ by a few hundred dollars immediately when opening a position!!! Yes it’s SUPPOSED to be ‘all relative’ but it’s ONLY ‘all relative’ if you’re factoring in the spread and / or commissions no matter HOW small your account is!!!

Regards,

Dale.

What sort of tax % can you get down to trading futures after paying minimal commission and performing some accounting, eh, optimisation?

How long’s a piece of string?
Talk to an accountant - commissions, withdrawal fees, broadband fees, housing, etc. could all be tax deductible depending on how you play it, you could also set up your own business and take a salary only paying income on that and corporation capital gains on the rest, etc. etc.

Anyway, it’s a difficult thing to see as it depends on your trading style, whether you show some profitability and should therefore swap, whether your style is better suited to scalping and therefore no spread or minimal spread, etc. etc.
Also, futures do not have capital gains…

Sounds like a lot of extra work! I think I’ll just stick to SB for now despite the commissions involved. I’ll monitor it as things progress but at the moment I’m paying on average about 5% commission after taking into account loss costs, spreads between different pairs and profit levels reached (typically around the 50 pip mark). Still early days with the live account though so we’ll see. I’m going to record each commission though in my trade record spreadsheet to get a proper figure over time and see if it’d be worth my while to make any changes later.

If it’s 5% and you’re making money then it’s probably wise to carry on until later when an accountant could help but you’d need to way up the pros and cons. It’s of more importance if your spread commissions are nearing the 10,15,20% mark - depends on what your capital gains tax is. Remember that the spread is taken off winners and losers yet in a capital gains world, you can deduct losses from your tax bill.

I think Belgium has very low income taxes. Or move to Monaco if you can afford it (you may need 1 million € to buy a small apartment there).

So far I don`t have come accross Futures trading. Does it work with small accounts (1000€)?
First I was interested in stocks but quickly learned that at 1000€ the fees would be a too great percentage to be intraday trading.
How is that with Futures?