# Spread betting &/or CFD's are NOT a good substitute for long term shareholding?



## Betsy Og (2 Oct 2008)

Hi all,

A bit of a novices question but, to my knowledge, spread betting on shares and contracts for difference are not a good substitute for long term buy and hold strategies for shares as


greater risk, you have to "pay out" to cover your loss. With equities the worst that can happen is you lose all your capital, but you've only lost it when you sell, & if you're holding for the long run then, on average, you'll recoup your money at least. Plus with equities you put your money in up front when you can defo afford it, on other options you get cash calls when maybe it doesnt suit you or your circumstances have changed for the worse.
I'm presuming that either spread bets or CFD's have defined (& short) periods after which you have to settle up, so you "sell" when you wouldnt otherwise.
Pro's of spread betting - tax free
Pro of CFD - cgt deduction for interest if you borrow to buy (normally no CGT deduction for interest).
Con of spreads & CFD's - dont get the divs. (do some of them compensate you for this?)

I'm not anti spreads or CFD's (though the leveraging of some CFD's doesnt appeal to me, being fairly risk averse), so I'd welcome anyone to set me straight if, as I suspect, I'm not getting the full picture on CFD's & spreads.


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## lemur (2 Oct 2008)

Long term 'buy & hold' is called a sucker play by the pro's Betsy.

If you must dabble in shares. CFd's or spreadbets are the way to go. The commissions charged by Irish brokers are outrageous.


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## Betsy Og (3 Oct 2008)

lemur said:


> Long term 'buy & hold' is called a sucker play by the pro's Betsy.
> 
> If you must dabble in shares. CFd's or spreadbets are the way to go. The commissions charged by Irish brokers are outrageous.


 
hmm, but isnt there also the theory that is you keep jumping in and out the only one making money is the broker.

My logic is that, in the long run and on average, share values rise. Due to recent shocks a lot of the financials are historically low, over time (with a few peaks & dips in the meantime) I expect they'll increase. I dont really have time for looking at "the screens" (I sound like Joe Duffy ) and trying to call the market the whole time, I'll leave that to the pros - and I'll get myself 43-47% ahead of the game with pension investment if thats what I want.

Any views on the specific comments I made above? (I realise it would take some time to get any type of diversification without getting crucified on charges, and investing in an eft or other managed fund etc. would take any fun out of it.) 

So I want to dabble a bit and make a few calls, but not obsess about it.


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## lemur (3 Oct 2008)

Betsy Og said:


> hmm, but isnt there also the theory that is you keep jumping in and out the only one making money is the broker.
> 
> -This is where the skill of a trader comes in
> 
> ...


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## zephyro (3 Oct 2008)

lemur said:


> - Managed fund performance is generally very poor. Though the industry just presents the best cases while the 'dog' funds are quietly closed.


 
Trader performance is also generally very poor, though the industry presents the big winners while the losers lose everything. Is there a difference between identifying the good/lucky managed funds and the good/lucky traders?


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## lemur (3 Oct 2008)

zephyro said:


> Trader performance is also generally very poor, though the industry presents the big winners while the losers lose everything. Is there a difference between identifying the good/lucky managed funds and the good/lucky traders?



I understand that about 90% of new traders blow out their account in the first four months. But the 10% (probably a lot less over time) who survive and  develop the correct skills can do very well. Its the same in most professions. How many new businesses in all industries fail? The numbers are similar.


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## demoivre (3 Oct 2008)

lemur said:


> Long term 'buy & hold' is called a sucker play by the pro's Betsy.
> 
> If you must dabble in shares. CFd's or spreadbets are the way to go. The commissions charged by Irish brokers are outrageous.



The funding costs associated with long CFD positions make them unsuitable as a long term investment vehicle for equities imo.


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## limerickboy1 (3 Oct 2008)

i would agree with lemur that spread betting is the way to go. i refuse to pay the govt taxes on a decision i make . why should i?

but for someone like yourself that just wants to buy and hold then using a fund mgr is the only way to go i think but as lemur says irish brokers charge disgracefull fees


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## Betsy Og (3 Oct 2008)

thanks for the replies, good overviews.

To get back to the specific point, 


are there standard 'close out' periods for spreads - i.e. is your account reviewed every month or 3 months and you settle up, or does either party have discretion as to when to strike & whether to continue?
I'm taking it that spreads are a proxy for active buy/sell where you're jumping in and out of shares on a weekly/monthly basis?


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## lemur (3 Oct 2008)

Betsy Og said:


> thanks for the replies, good overviews.
> 
> To get back to the specific point,
> 
> ...



Betsy,

There are too many details required to answer the questions you are asking. 

Your approach depends on your objectives, risk profile, timeframe etc.Need to be very clear about these objectives before deciding on the best methods.

Send me an email if you want more info. 

peterbr@yahoo.com


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## raysor (3 Oct 2008)

Firstly a CFD, in some circumstances (prior notification), can be turned into a "normal" trade. (in fact there is a normal trade behind every CFD trade. Therefore you can take up stock for the long term. In fact some investors buy CFDs as a way to building up a stake in a company. Usually, though they are used for short term trading, until the cost of financing outweighs the saving on SDRT and maybe brokers commission.
Spread betting is just what it says. It is ideal for small punters for obvious reasons, but everyone should be wary of Index options, stock options and Index futures etc. Especially writing them!!!!!
The LSE is shortly to start a market in Listed CFDs. As you know CFDs are OTC usually.I think this is January 2009.

www.shareworld.co.uk


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## Raskolnikov (3 Oct 2008)

lemur said:


> Long term 'buy & hold' is called a sucker play by the pro's Betsy.


I think Warren Buffett might have something to say about that.


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## charttrader (3 Oct 2008)

If you're looking for l/t buy and hold on individual shares, then you're better off opting for conventional purchases through a discount brokerage, see the 'best buy' threads for Irish and international stockbrokers in the Financial Best Buys forum (Irish brokers, as has been remarked already, are way too expensive for the most part)
Spread betting would not be very cost effective for l/t purchases, afaik.  It's best suited to active traders (but not day traders, who need tighter margins again).


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## lemur (3 Oct 2008)

charttrader said:


> If you're looking for l/t buy and hold on individual shares, then you're better off opting for conventional purchases through a discount brokerage, see the 'best buy' threads for Irish and international stockbrokers in the Financial Best Buys forum (Irish brokers, as has been remarked already, are way too expensive for the most part)
> Spread betting would not be very cost effective for l/t purchases, afaik.  It's best suited to active traders (but not day traders, who need tighter margins again).



The problem with the discount brokers is that though nominally they charge a lower commission they get you with a wider spread than a full service broker. So the discount broker concept is a largely a con. The only cheap way to buy shares on a conventional purchase is to have a US account where you can buy 1000 shares for less than $10 commission with the online brokers. The cheapest one is IB.


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## Betsy Og (3 Oct 2008)

lemur said:


> The only cheap way to buy shares on a conventional purchase is to have a US account where you can buy 1000 shares for less than $10 commission with the online brokers. The cheapest one is IB.


 
Would IB buy in the Irish market? Are they still competitive at low value low volume (I'm sensing my 2 bit dabbling would be just a pest for anyone in the business )


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## lemur (3 Oct 2008)

Betsy Og said:


> Would IB buy in the Irish market? Are they still competitive at low value low volume (I'm sensing my 2 bit dabbling would be just a pest for anyone in the business )



IB no. Irish shares are pretty boring (recent events the exception). I don't bother with them.


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## raysor (3 Oct 2008)

I don't get all this cheap commission. OK so FTSE 100 maybe. I have a client who deals in smaller shares. He deals with me (1.85% >£10k then 0.6%) and a bucket shop, sorry discount XO broker.
He said to me some time ago, OK if you can deal cheaper than the other broker you can have the business. I think what he meant is if I could get inside the spread then he will pay my full comm. Who do you think did all the deals. Sometimes I (sorry my dealer) would save £200/£300 on a deal.

If you deal in reasonable size you should be able to negotiate comm with your broker, he will give you a good service (i.e. alerting you to price movements), good advice, hopefully, and good prices, usually. Always ask for concessionry 'closing' commission (min. comm. on 'closing') and possibly 'continuation' commission.

Don't expect brokers to fall over backwards for small (maybe limit) deals. Let's say the comm is £50. The broking firm usually take the first £10-£15 then split the rest 50-50. That gives £20 to the agent. What can you get for £20 these days?
www.shareworld.co.uk


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## limerickboy1 (3 Oct 2008)

the irish and even the UK market are just lemmings that follow the US markets. the tone is set over there. when the US goes up, the UK goes up etc. 

you can open stock positions via spread betting anything from 1 day to 1 year. you have to roll over then though and "settle up" if your stocks or down


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## lemur (3 Oct 2008)

raysor said:


> I don't get all this cheap commission. OK so FTSE 100 maybe. I have a client who deals in smaller shares. He deals with me (1.85% >£10k then 0.6%) and a bucket shop, sorry discount XO broker.
> He said to me some time ago, OK if you can deal cheaper than the other broker you can have the business. I think what he meant is if I could get inside the spread then he will pay my full comm. Who do you think did all the deals. Sometimes I (sorry my dealer) would save £200/£300 on a deal.
> 
> If you deal in reasonable size you should be able to negotiate comm with your broker, he will give you a good service (i.e. alerting you to price movements), good advice, hopefully, and good prices, usually. Always ask for concessionry 'closing' commission (min. comm. on 'closing') and possibly 'continuation' commission.
> ...




Get a grip Raysor. Transactions Irish brokers often charge hundreds of euro's for just cost $10 or less in the US. You want the Irish consumer to pay for the stone age approach of Irish brokers?


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## raysor (4 Oct 2008)

Hi Lemur,

What sort of stocks are you talking about? UK, US, Irish? I have a client who is in Ireland, actually in Merrion Street. He buys Irish and UK stocks through me. I give him something like 1% because he is a good client. Also I have clients in US who trade US options, US & UK stocks also at 1%. They use me because they say US brokers don't know anything (as if I do)
I use CIBC in London to trade US stocks. This is not cheap as you pay brokerage in a net price (i.e. 15 contracts COP options, gross $9 net $9.10 (bartered down from $9.15)) plus my commission of 1% So that's around £150 all in.
You can of course use London MMs to trade US stocks but this is even more expensive.
I might add we clear through Pershing so the currency trades are really cheap.
I only know one Irish broker that's Davy. Presumably there is a standardish commission structure in Ireland?
How do you trade exactly?


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## lemur (4 Oct 2008)

raysor said:


> Hi Lemur,
> 
> What sort of stocks are you talking about? UK, US, Irish? I have a client who is in Ireland, actually in Merrion Street. He buys Irish and UK stocks through me. I give him something like 1% because he is a good client. Also I have clients in US who trade US options, US & UK stocks also at 1%. They use me because they say US brokers don't know anything (as if I do)
> I use CIBC in London to trade US stocks. This is not cheap as you pay brokerage in a net price (i.e. 15 contracts COP options, gross $9 net $9.10 (bartered down from $9.15)) plus my commission of 1% So that's around £150 all in.
> ...



You are clearly acting as a middleman  and charging nice fees for it.  I use a couple of American brokers. I buy direct. $8 commission for 1000 shares and $1 per option contract. Also use IG mkts in the UK 2c/share for CFd's.


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## charttrader (6 Oct 2008)

lemur said:


> The problem with the discount brokers is that though nominally they charge a lower commission they get you with a wider spread than a full service broker. So the discount broker concept is a largely a con. The only cheap way to buy shares on a conventional purchase is to have a US account where you can buy 1000 shares for less than $10 commission with the online brokers. The cheapest one is IB.



I'm referring to online brokers like IB, Ameritrade, etc.  Spreads and executions are much better than spread betting firms, who are not competitive if you are day trading.  For holding periods of days/weeks, etc, SB firms are fine.


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## och aye (15 Jan 2009)

Has anyone any idea on actual performance through a stockbroker managing a portfolio of shares in an advisory capacity ?
Stockbrokers dont publish such performances, I wonder why?


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## lemur (16 Jan 2009)

och aye said:


> Has anyone any idea on actual performance through a stockbroker managing a portfolio of shares in an advisory capacity ?
> Stockbrokers dont publish such performances, I wonder why?



Well, obviously it depends on the broker. But most Irish brokers have terrible performance as they dont know how to trade. 

Most of them are glorified salesmen.


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