I’ve been demoing with FxPro and when you open their platform it says “Your Trusted ECN Solution.” I decided to read their entire Client Agreement and at some point they clearly define themselves as Market Makers. Go figure.
So, continuing my research… for a newbie like me, it seems that it’s not enough with the differences between true ECN broker and Market Maker broker, now I’ve just discovered that there’s another route between Forex Spread Betting or Forex Broker companies.
So, if I understand correctly, it will be like this (in general terms):
A. First, you need to decide if you want to go with a Spread Betting company or Broker company.
B. Then, if you go for the broker route, you have to decide which type of Broker, a “true” ECN or a Market Maker broker.
Spread Betting, as far as I know, is tax free in the UK as long as you can prove that you have another source of income that covers your living costs. There lies the reason on why it could be more attractive for UK traders, because ALL profits would be yours. However, I’ve read not-so-good opinions on Spread Betting companies.
The downside with trading Forex with a broker (in the UK and from a profit point-of-view) is that is subject to tax, either Capital Gains Tax or Income Tax (which I’m still not sure when each case applies), so you’ll have to give some share to the taxman.
I’m not convinced by Spread Betting though.
For a newbie in the uk go with a spreadbetting account. As you said its tax free and there is not that much difference. Dont believe all the bad reviews that are on the internet. You will read loads from idiots who have had margin calls because they have no idea of risk management. Spreadbetting firms do all they can to keep customers not the opposite as you will read a lot
It seems that what it will work for me it’s a company that allows me to trade micro lots (to get my feet wet as a beginner). Like I’ve said, I’ve been demoing with FxPro cTrader platform but unfortunately, they only accept a minimum of 10k units per position. I want the ability to trade micro lots because apparently it allows you more room for better risk management for newbies. And you gain some experience along the way.
I will continue my research on Spread Betting companies, but for now I’m more inclined for a Broker. However, I’ve downloaded a Demo Account with FXCM UK for their Spread Betting service. I still don’t know what is the big difference between Spread Betting and Forex Broker thing, since people usually comment that they’re similar, but I don’t know exactly what “similar” means in this case, besides that you set the price per pip.
Have you looked at Oanda? You can trade as low as $0.01 per pip. I must admit that I never heard of them but after going through hundreds of threads on this site, there name keeps popping up again and again. I have just opened a demo account with them (which stays open indefinatly). I am not trading live at the moment because I am starting my forex education again from scratch.
Yeah, they get mentioned a lot. Are they Spread Betting company?
They are a spreadbetting firm i believe. From wgat i have seen from the demo you can trade from tgeir mt4 charts from $10 a pip and from their actual site from $0.01. Just another site for you to conisder.
It seems to be a very popular one, yeah. I will add it to my list.
Are you still in demo or live? (in general)
You never get charged Capital Gains tax trading through a spread better provider, or an ECN provider.
Don’t forget what you are trading, or in fact what you are not trading. You are simply betting using derivatives that mirror the underlying financial you are concerned with. You never have ownership of what you are trading, and thus never make a capital gain or loss. Think of it more as bets if the financial will go up or down. Thats exactly what the big boys do in the city day in day out.
Hmmm… interesting. But you declare it as such for tax purposes IF you trade with a Forex Broker right? Because I understand that only Spread Betting is tax free as long as it’s not your “main” source of income. The rest of the Forex trading activity is taxed under UK laws. Or so I know.
even spread betting is taxable, regardless of it being your second income. If spread betting exceeds your previous main source of income then the Inland Revenue (HMRC) in the UK, label you as a professional speculator. Thus your combined income from your day job and that of ‘spread betting’ is aggregated together and you are taxed on the total income by income tax. Your net profit and loss is already shown in your account balance via your broker, so you cannot minus any losses as this is already accounted for.
I am still on the demi at the moment
My understanding is that even if it exceeds your day job earnings they’re tax free because the tax law understands it as a form of gambling. When Inland Revenue considers you a professional gambler is when SB is the only thing you do for living.
At least that’s what I know.
Well, I’ve been trying FXCM Spread Betting demo and I don’t see much difference between that and the Non-Spread Betting account. One thing I’m noticing is that when you display reports, it doesn’t display commissions or fees (usually the spread) for the broker. It is as if I don’t have to pay a cent to them.
Maybe it’s just a trick for newbies so they will see on their balances gross profits and not net ones, feeling excited how much money they have “earned” and when they go live… pum! Fees, rollovers, spreads, etc.
I like their platform though.
Hi Brolin,
The only difference between a regular FXCM account and a spreadbetting FXCM account is that the “spreadbetting” designation provides potential tax benefits for residents of the UK and Ireland. The transaction costs on both types of accounts are exactly the same.
Your transaction costs on a live spreadbetting account would be the same as you currently see on your demo. You pay the spread, and there is no commission charged on top of that. If you hold a trade overnight (i.e. you hold a trade open through 5pm New York time), then you will earn or pay rollover interest on the position. That will be reflected in the rollover fee section of the reports.
Glad to hear you’re like the platform. If you have further questions, feel free to shoot me a message or post a question in FXCM section of the forum.
Jason
I’ve been demoing with FxPro and when you open their platform it says “Your Trusted ECN Solution.” I decided to read their entire Client Agreement and at some point they clearly define themselves as Market Makers. Go figur
I know I should seek accountant advice, but can you elaborate on that? (tax liability on both types of accounts for UK residents)
But I don’t see any.
UPDATE: I left a position overnight and closed it today and it doesn’t show any rollover fee in the report. Besides, I just noticed blank spaces for Administrative Fee, Management Fee, Performance Fee (!!!)… see, it seems like the Demo works only as bait (showing Gross Profits and not Net Profits).
Hi Brolin,
Consulting your accountant is really the best thing in this case. Spread betting accounts enjoy special tax-free status for residents of the UK and Ireland, but it’s important to note that the UK tax treatment of your spread betting activities depends on your individual circumstances and may be subject to change in the future, or may differ in other jurisdictions.
The spread you pay is already factored into the price you open and close the trade. For example, if you had a long position, you bought at the Ask price to open the trade, and sold at the Bid price to close the trade. The P/L you see on the Trading Station and the reports has already deducted the spread.
Were your trades open at 5pm New York time (21:00 GMT)? That is the cutoff that divides one trading day from the next. If you opened a trade after 5pm New York time, then no rollover interest would apply unless the trade was still open at 5pm of the following day. That means intra-day traders don’t have to worry about rollover unless they keep trades open past 5pm.
If you have trades on your demo that are held past 5pm New York time on a weekday, then you will either earn or pay rollover interest. You can see the exact amount of rollover in the Roll column in the Open Positions tab, and in the Rollover Fee section at the bottom of the reports. You can even see the amount of rollover you would pay in advance in the Dealing Rates window under RollS and RollB. It works just like in the live account. 
Jason
Right. Do you know anything about tax liabilities in a Non-Spread Betting account? Are they subject to Income Tax or Capital Gains Tax?
Oh, I see. I’ll check it next time I open/close a position. Still, it’s not in visible form. Since the spread is not fixed, it would be nice to see it displayed on the report to know what was the transaction cost for a specific order (it would be even better to know the cost upfront).
[U]UPDATE[/U]: I checked and it doesn’t discount the spread. Profits displayed are not the real amount “earned.”
Yes. They didn’t show up in the report before you posted this. Now they are there.
What about all the other fees and commissions? (Maintenance, Administrative, Performance) There are like 6 or 7. While I understand that not all may be applicable, it does make me wonder of high transaction costs.
Hi Brolin,
I’m not qualified to discuss taxes. Tax laws vary by region and would also depend on your individual circumstances. It would be best to ask an accountant regarding any tax questions.
The spreads are constantly changing as banks update their prices and depend on market conditions. You will tend to find the the tightest spreads during the daytime hours in a particular country. For example the tightest spreads for AUD will typically be from 8am to 4pm Sydney time.
Try opening a trade and then immediately closing it. You will see that your P/L is slightly negative reflecting the spread cost you paid. When the P/L is positive that means you have already covered the spread cost that was paid and are making a real profit on the trade.
It can take up to an hour for the rollover interest you earn or pay to post to your account, so rollover will be visible in your account by 6pm New York time for trades that were open during the 5pm cutoff.
There are no other fees on a self-traded account with FXCM besides the spread and rollover if you hold a trade overnight. Commissions and performance fees apply to managed accounts or certain kinds of automated accounts. Even in those cases a client would have to review and sign a fee acknowledgement form to sign up for such a service.
Jason