Spread Betting?

Beginner Questions
1

Hi.

I’m relatively new to trading forex, and still learning on a demo account. One thing I’ve read about is spread betting and the advantage of tax exemption. I could never understand what was different about it compared to FX. Until I read a link that explained it exactly as what I am already doing.

So It seems that standard FX trading “is” spread betting and exempt from paying tax on any profits. Is this correct? If not could someone please explain the differences?

Thanks,

Callum.

2

Depends in which country you live, you know here on this forum there are people from all over the world with different legal systems,so your question is not good here.You should ask a lawyer or a legal advisor in your country to be sure, but it my opinion it isnt.Forex is an investment type and as all investments in civilized countries are taxed.

3

Hi Proximus.

Thanks for your reply. Sorry, maybe I didn’t make the question clear. I’m not asking about tax exemption, as I know that spread betting is tax exempt here in the UK. I’m asking if trading forex short term (betting that the price will go up or down) is the same as spread betting. If not, I’d like someone to point out the differences.

Thanks,

Callum.

4

You mean BINARY OPTIONS where you can bet on price movement up or down,or spread or other stuff in this case, is this what you mean by spread betting,i never heard of such thing ? Unfortunately i know nothing about UK laws, but you have some nice laws there, if they allow you to spread bet without taxing it.But i advise you to ask a specialist, not that i have anything against helping people on the forums, but you know just to be sure, nobody is a lawyer here.But my opinion is that forex is just as stock,derivatives or other financial markets, it is an investment business,and most of these instruments, not all of them there are some exceptions, like treasury bonds which are usually tax exempt, but most of them are taxable.So to you should ask a specialist who is familiar with your countries laws.

5

There is no difference - in UK and Ireland if you trade via ‘spread betting’, i.e an accredited (by HMRC) spread betting firm in a ‘spread betting’ a/c then you pay no tax - provided that it is not your main or only source of income.

The firms are still regulated by the FSA and not the Betting Commission.

The mechanics of spread betting are slightly different in that you do not trade by ‘lot size’, instead you set the cost per pip, e.g 50p per pip etc.

Most of the Uk spread betting firms will give a low down on ‘what is spread betting’ such as the pioneers ‘City Index’ or ‘IG Index’

You cannot trade ETF’s of CFD’s via these a/c’s - but every possible asset class is there including FX.

Binary Options are a different animal and regulated by the Gambling Commission.

6

Thanks peterma, that’s explained a lot (no pun intended) and very clearly. I know know that I’m not spread betting which is what I was looking to find out.

Callum.

7

People in the UK mainly utilise spread betting to trade forex because winnings (gains) are tax free (see So is Spread Betting really tax-free? ). Forex trading and CFDs on the other hand are not tax free but this isn’t necessarily a disadvantage because it is true that you have to pay taxes on gains but you will also be able to offset losses against future gains.

8

Spread betting is tax free in uk because when spread betting you are essentially, betting which way price will move i.e. your money never joins the market so has no effect on the supply or demand of that market, your broker is essentially a bookmaker. CFD’s on the other hand are taxed because you are actually participating in the market, buying and selling something; trading.

9

What’s a civilized country ? Forex is not taxed in Switzerland.

10

I think this is the best explanation I have read.

11

Yep, this is exactly how it works (as naughtypip explained).

  • Spread betting - simply placing a bet, so you are not either selling nor buying anything, just betting against the spread
  • FX or CFDs, etc - when selling, you are gaining money (Capital Gains Tax) therefore these are taxed (plus there is Stamp Duty or similar, not entirely sure)

PS. You may want to clarify it further, but if you live from Financial Spread Betting in the UK (the only source of income), you might be subject to above taxation anyway! If it is your secondary source of profit (additional), then you might be exempt.