# Is financial spread betting gambling or investing?



## barryl

Moderators' note

I have split this very specific discussion from the thread on the the difference between investing and gambling

brendan


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## z106

*Re: The difference between Investing and Gambling*

Ok - I would agree with most of the above - except the bit on spreadbetting.

I have had this argument with Brendan on another thread and what Brendan is saying about spreadbetting being gambling is factually incorrect.

The spread that someone pays currently on rolling over 4 futures contracts in the year is c. 5.6%.
i.e. Overall your stocks must rise 5.6% in the year for you to break even.
(Note that historically the market has averaged double digit growth)

Spreadbetting is a geared investment - much the same as CFDs.
For any gerared investment,be it property or stocks,it will carry a charge.
Currently that charge is c. 5.6% for spreadbetting.

Using Brendans logic, that would mean that CFDs is gambling too.
I'm sure most people would consider CFDs as investing rather than gambling.

In fact - spreadbetting is pretty much exactly the same as CFDs except you don't pay tax with spreadbetting.
(Spreadbetting companies also pay out dividends like CFDs)

So if someone thinks CFDs is gambling then they will think spreadbetting is too.
If they believe CFDs is not gambling then they will think think that spreadbetting is not gamling either. 

To sum up - Instead of taking my word or Brendans word on this topic,I would advise people to do their own research and satisfy themselves as to whether they consider spreadbetting as investing or gambling.


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## Brendan Burgess

*Re: The difference between Investing and Gambling*

qwerty

The comparison of spread betting with CFDs is only superficial. Sure CFDs are leveraged investment. So too is buying an investment property with a mortgage. The leverage increases the risk. It does not turn an investment into a gamle. Nor does the lack of leverage turn a gamble into an investment. 

CFDs are virtually the exact same as borrowing money with which to buy stocks. Buying stocks is not gambling. So borrowing money to buy stocks is not gambling. CFDs are very risky, but as there is an expected positive outturn, they should still be classified as investment. 

Spread betting is gambling.  Take a spread bet on the number of goals in a specific football match. Do you agree that this is gambling? I might buy goals and you might sell them, with the spread betting company taking a spread or margin. If you make a long series of spread bets, then the spread will eat up your capital. 

Betting on the price of equities is no different from betting on the number of goals in a football match or betting on a horse. It is a zero sum game, turned into a negative outcome by the bookie's spread. 

The tax-free element is misleading. Of course there is no tax, as the wins will be outweighed by the losses over time. 

Buying shares in a spread betting company is investing. It can be expected to make a positive outturn over time. Look at the profits of the spread betting companies. Where do you think that they come from? 



> The spread that someone pays currently on rolling over 4 futures contracts in the year is c. 5.6%.
> i.e. Overall your stocks must rise 5.6% in the year for you to break even.
> (Note that historically the market has averaged double digit growth)



Agreed, this looks like good value. It looks like a good bet. But it is a bet. I have bet on the outcome of elections and horse races where I thought that there was value. But it was gambling.  Presumably the spread betting company offering these odds, has someone on the other side "selling" this bet?  Your gain + the gain of the spread betting company will equal the loss of the person laying this bet.

Brendan


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## bankrupt

*Re: The difference between Investing and Gambling*



Brendan said:


> Buying stocks is not gambling.



I agree, however, it seems to me that there is very little difference between buying a position from a spread betting firm and buying stock from a broker.  If I have done my research into an asset and expect it to rise then surely I could "invest" (or perhaps "gamble?") my money either through a broker or a SB company?  

I don't see what sports spread betting has to do with it?



> The tax-free element is misleading. Of course there is no tax, as the wins will be outweighed by the losses over time.



But presumably there is no "house advantage" in financial spread betting, it is simply another way of investing, if the asset rises in value you gain if it falls you lose (assuming you're not shorting)?

I would like to understand better the differences between using a broker rather than (non-leveraged) spread betting.  Mark Shipman recommends SB without any major reservations, his only caveat is to avoid leveraged positions which seems like sensible advice.  Given the expense and CGT implications of using a broker surely SB is a sensible way to invest?


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## z106

*Re: The difference between Investing and Gambling*



Brendan said:


> qwerty
> 
> The comparison of spread betting with CFDs is only superficial. Sure CFDs are leveraged investment. So too is buying an investment property with a mortgage. The leverage increases the risk. It does not turn an investment into a gamle. Nor does the lack of leverage turn a gamble into an investment.
> 
> CFDs are virtually the exact same as borrowing money with which to buy stocks. Buying stocks is not gambling. So borrowing money to buy stocks is not gambling. CFDs are very risky, but as there is an expected positive outturn, they should still be classified as investment.


 
Brendan - Firstly I think you misunderstood my point about CFDs.
I completely agree with what you said in the snippet above.
In fact - if you see one of my posts from the original thread this topic started on then you will see I said teh exact same thing.
(It was in response to you saying that CFDs is gambling too - obviously you have changed your stance on that viewpoint).

http://www.askaboutmoney.com/showthread.php?t=69447 (See my post #18)

Just to clarify - I do NOT consider either spreadbetting NOR do I consider CFDs as gambling.
They are in fact virtually identical products in my eyes.

The crux of where we differ is that you do NOT consider CFDs as gambling but you DO consider spreadbetting as gambling.

You say in your previous post that what makes the difference between CFDs and spreadbetting is that over the long term the expected outcome with CFDs is positive but with spreadbetting it is not - Hence investing vs gambling.

And that is the crux of my dispute.
I ask you - What is the fundamental working difference in both investment vehicles that makes you come to this conclusion ? 

I say there is no fundamental difference which could draw such a conclusion.
They are virtually identical products.
i.e. They are both geared invesments which carry a very similar charge (c.5.6% with spreadbetting - presumably something similar with CFDs) before someone breaks even.

If there is a fundamental working difference between them then can you please let me have it - my ears are open !!

Another point - see the snippet from my previous post below.



qwertyuiop said:


> The spread that someone pays currently on rolling over 4 futures contracts in the year is c. 5.6%.
> i.e. Overall your stocks must rise 5.6% in the year for you to break even.
> (Note that historically the market has averaged double digit growth)


 
You responded to this in your above post by saying 



Brendan said:


> Agreed, this looks like good value. It looks like a good bet. But it is a bet.


 
How can you say this?
If on the one hand we are both agreed that over the longterm the market will produce double-digit returns.
And we are also agreed that the charge of this spreadbetting service is 5.6%.
Then the obvious conclusion is that over the long term someone can therefore expect expect a net annual return of c. 5%.
This fits into your own definition of investing.
i.e. expected net returns over the long term - yet you say in your previous post that this is in fact a bet.
This appears contradictory to me.


Also - and this is possibly the best way of explaining it.
You say


Brendan said:


> If you make a long series of spread bets, then the spread will eat up your capital.


 
Correct - however an incorrect conclusion is being drawn by you. i.e. that so much of your capital is eaten up it puts you in negative territory
In fact - what's important is how much of your capital it eats up versus your expected average annual returns over the long term.
To reiterate - spreadbetting eats up c. 5.6% of your exposure annually..
Annual average net returns over the long tem are double digit - therefore a net average annual profit of,say,c. 6% - 8% can be expected over the long term.
Therefore Investing - not gambling.
If there is aflaw in that logic then can you please point it out.

To sum up - I think we agree on a lot of the main points - but you then you take these points and make a leap to an incorrect conclusion. 
Personally I suspect that you have it in your head that spreadbetting is betting purely because the word "betting" is there, instead of thinking through the actual fundamental workings of the product and basing your conclusions on that.

On very final point - the comparison you make to sports spreadbettig is not a direct equivalent - so in case that is the basis of your thoughts on financial sptreadbetting then it should not be.


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## Brendan Burgess

*Re: The difference between Investing and Gambling*



> If there is a fundamental working difference between them then can you please let me have it - my ears are open !!



Hi Querty

There is a fundamental difference. And it is huge. Keep those ears wide open. 

When you buy a share in a company, you have a positive expectation. A company is doing something positive. It is combining financial capital, enterprise and labour to produce an economic service or product. It creates profit. There is no loser. 

Buying CFDs is simply borrowing to buy shares. It is also investing.

Betting on the price of shares, or horses, or football,creates no added value. If you win, I lose the equivalent amount if you bet straight against me. If you bet against a bookie, you the odds are stacked against you, and you will lose your entire capital over time. 

There is no real comparison between investing in shares and gambling on the future price of shares. 

 The bookies quote odds on every horse in a race. They will be wrong on one horse and right on all the others. The bookies may make errors in the prices. The prices you quote seem too high to me. But it is still gambling. The nature of gambling is that you will win on some bets, but lose overall. That is why it is so addictive. 

Brendan


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## bankrupt

*Re: The difference between Investing and Gambling*

I appreciate the philosophical difference, but as someone dispassionately interested in investing in a stock this should not be a concern.

You assume that the SB company can predict the market better than his clients.  This may be the case in sports betting but is certainly not true of financial spread betting.

Anyone can see that it is ridiculous to equate financial spread betting to the simple outcomes that bookies deal with.


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## z106

*Re: The difference between Investing and Gambling*



Brendan said:


> Hi Querty
> 
> 
> The bookies quote odds on every horse in a race. They will be wrong on one horse and right on all the others. The bookies may make errors in the prices. The prices you quote seem too high to me. But it is still gambling. The nature of gambling is that you will win on some bets, but lose overall. That is why it is so addictive.
> 
> Brendan


 
Brendan - I am well aware how sports bookies work.
Put simply - say on a roulette wheel of 37 numbers (incl. zero) they will give you 35/1 on a number on a roulette wheel when they should give you 36/1 - hence a 3%-ish guaranteed profit over an infinite turns of the wheel.i.e. the long term.

However - financial spread betting has nothing to do with betting on horses or roulette or sports spreadbetting or anything like that as you seem to think.
This is not a valid analogy at all but is flawed.
ANd that is the basis of your error - you automatically are drawing incorrect comparisons to traditional sports bookies - hence you assume financial spreadbetting is also gambling and not investing.

It is not.

Sports bookies should not even be mentioned in this kind of conversation as they are not in anyway relevant.

Again - I repeat - Financial spreadbetting has NOTHING to so with sport spreadbetting or sports betting.
And this is the flaw in your argument.

In fact - I think I'll say that once more to stress the point.
Financial spreadbetting has NOTHING to so with sport spreadbetting or sports betting.
ANy analogys drawn between the two are incorrect.

Put simply - financial spreadbetting companies should be looked on as brokers - because that is basically what they are - not bookies as yopu seem to think.
To reiterate - Financial spreadbetting eats up c. 5.6% of your exposure annually. 
i.e. you need to make an annual 5.6% gain to break even - anything extra is profit.
This can be viewed as the charged for gaering - a charge that is present for all geared investments.(E.g. Interest repayments with say a mortgage or CFDs)

And as we both know - Annual average net returns over the long tem are double digit - therefore a net average annual profit of,say,c. 6% - 8% can be expected over the long term.(after 5.6% is deducted).- just as with CFDs.
Therefore,by your own definition, Investing - not gambling.(Investing because,over the long term, an average annual positive return - even after the 5.6% charge is deducted - can be *expected*)

I can say with 100% certainty - and I am putting mny neck on the line here - that spreadbetting is not gambling.
It falls bang into the middle of your definition of investing that you definesd earlier.
It is used by many people as their investment vehicle of choice.

If someone can prove me wrong I will promise to never post on this site again as a self imposed exile - but I am definitely not wrong.

Spreadbetting is virtually the exact same thing as CFDs i.e. using leverage to buy stock at a charge of c. 5.6%.

I can't say anymore on teh topic other than what i've said other than I suggest you read up on the intricities of it properly (while ignoring the workings of sports bookies) - or better again set up a virtual trading account to familiarize yourself with teh concept properly.
I use a real account myself for trading so am well aware of the intricities of it.


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## Brendan Burgess

*Re: The difference between Investing and Gambling*

Qwerty



> Again - I repeat - Financial spreadbetting has NOTHING to so with sport spreadbetting or sports betting.
> And this is the flaw in your argument.
> 
> In fact - I think I'll say that once more to stress the point.



You can say it as often as you like, but they are exactly the same thing. You are betting or gambling on an outcome. There is no service or product being produced. If you win a bet, someone else loses the bet. And the bookie takes their spread or commission or whatever. It is a negative sum game. 

Before you quit Askaboutmoney for ever, please do address one final point:



> [spread betting is] investing because,over the long term, an average annual positive return - even after the 5.6% charge is deducted - can be *expected*



So are the bookmakers a charitable body? This is the key point that you are unable to see. If you can expect to make a long term profit, someone else must be making it. You say it's not the bookies. Fair enough - but who then is financing your return? 



> Put simply - financial spreadbetting companies should be looked on as brokers - because that is basically what they are - not bookies as yopu seem to think.



This is incorrect reasoning. You seem to think that going into a bookies shop is gambling, whereas betting on a betting exchange such as Betfair is not gambling. It makes no difference if they bookie holds the bet themselves, matches it against someone else, or lays it off. If you place  a bet on an uncertain outcome where there is no value being added, you are gambling. If you buy shares or property or other real assets, which can be expected to increase in value or produce a revenue stream, you are investing. 

Brendan


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## bankrupt

*Re: The difference between Investing and Gambling*



Brendan said:


> I note your point about the second hand market in shares. And trading in shares is gambling. However buying a portfolio of shares for the long term is investing, whether you buy those shares in an IPO, in a rights issue or from another investor.  Most investment property is bought in the second hand market. It does not take from the fact that it is investing.



If I hold a portfolio of spreadbets for the long term then is that not investing too?  This is exactly what Mark Shipman recommends doing in his book (for example, he has had a spreadbet position on gold open for years).


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## Duke of Marmalade

*Re: The difference between Investing and Gambling*

_Boss_, I think we are at idem.

But I think you have this financial spreadbetting a bit wrong. I certainly had until this topic which encouraged me to download Delta's brochure and T&C. I am definitely signing up come Monday.

What sells it for me is that they actually onward hedge your "bet" in the market. They make their money out of the difference between their spread to the punter (0.6% to 1% for Irish shares) and their spread with the wholesale markets. A big transparency feature is that you see the spread and are guaranteed that it will not widen before the expiry of the contract.

It seems to me that you have exactly the same economic interest in the shares as if you bought them - but are spared commission and stamp duty. And there is no CGT. You will also be implicitly exposed to dealing spreads in direct trading.

Over the longer term, though, the recurring half-spreads on rolling over a position take a toll.

Definitely far superior to direct trading for any short to medium horizon. They themselves suggest that for holding periods over 4 years direct holdings are probably superior.

It is possible for Delta customers as an aggregate or indeed for every customer to win and for Delta to make profits as well.

In extreme, all the customers could be buyers. Delta lay off those buys in the market, economically identical from the punters viewpoint to having purchased through a stockbroker. Market rises, everybody wins.

Spread*betting* is a most misleading and perjorative description of the activity but I guess they are keen to retain its very favourable tax status and accordingly do not wish to underplay the betting angle.

It is probably still gambling though but seems no different from CFDs and much superior to short term direct trading in shares.


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## z106

*Re: The difference between Investing and Gambling*



Harchibald said:


> Over the longer term, though, the recurring half-spreads on rolling over a position take a toll.
> 
> 
> It is possible for Delta customers as an aggregate or indeed for every customer to win and for Delta to make profits as well.
> 
> 
> Spread*betting* is a most misleading and perjorative description of the activity but I guess they are keen to retain its very favourable tax status and accordingly do not wish to underplay the betting angle.
> 
> It is probably still gambling though but seems no different from CFDs


 
Harchilbald - the cost for rolling over for a full year is c. 5.6% - that's basically the charge you pay for the luxury of having a leveraged positon versus a non-leveraged position (Same with any leveraged position be it CFDs,property etc. )

It is exactly the same as CFDs in fact - however Brendan insists on calling CFDs investing but spreabetting as gambling.
However - spreadbetting is also used for long-term holding by many people by simple rolling over each quarter for a total annual charge of 5.6%.

Brendan - I think the tide may be turning.

There are certainly now more of us on this thread - (that have gone to the trouble of reading up about it) - that see it as exactly the same as CFDs.
Is it possible that perhaps you are wrong ?

May I suggest you also download the info from the deltaindex website and get a proper grasp of the intricities of teh concept.
Of course - before you do that get sports betting and bettfair and the like out of your head completely.
It's a completely different concept !!


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## Brendan Burgess

*Re: The difference between Investing and Gambling*

Qwerty

It's not a democracy. It doesn't matter if a majority of gamblers think that they are investing. Go into Paddy Powers any Saturday and they will all tell you that they are investors. They will also tell you that they are all winning. All my friends who play poker on the net are winning. It strikes me as odd but there you go. 

Short term holding of shares is gambling. Short term holding of CFDs is gambling. Spread betting - on shares or horses or football is gambling. 

Brendan


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## z106

*Re: The difference between Investing and Gambling*

Correct - I also think that short term holdings with CFDs (and spreadbetting) is also gambling.

However - I would deem long term holding in CFDs (and spreadbetting) as investing.

ANd you must get these sporting analogys out of your head.


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## Duke of Marmalade

*Re: The difference between Investing and Gambling*



Brendan said:


> Qwerty
> 
> Spread betting - on shares or horses or football is gambling.
> 
> Brendan


 
_Boss_, Sunday morning and I should be at Mass, but I need to flog this horse a bit more.

_Keyboard_ appears to be right - financial spread betting is not in any way like sports spread betting. (I wish she wouldn't gloat, you can't be expected to know *everything*.)

The fundamental equation of sports betting is:

Punters' losses = Punters gains + provider's gross profits.

On balance, the punters lose - I agree we should see that as an essential pointer towards gambling. Sports betting firms hope to match buyers and sellers, so that on balance its customers lose. A betting exchange automatically matches buyers and sellers and levies a commission.

The fundamental equation of financial spreadbetting is:

Market return = Punters' gains (losses) + provider's gross profits 

The provider is somewhat indifferent as to the matching of buyers and sellers. My guess is that the bulk of Delta's customers are buyers. From your many writings, _Boss_, I think you believe that on balance the market return (equity performance less cost of borrowing) is expected to be positive, so the above equation represents a positive sum game and there definitely is a long term CGT advantage here, I wonder how long it can last.

Finally, for completion, the fundamental equation of direct trading is:

Market return = Punters gains (losses) + stockbroker's gross profits + stamp duty + CGT.


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## z106

*Re: The difference between Investing and Gambling*



Harchibald said:


> _Boss_, Sunday morning and I should be at Mass, but I need to flog this horse a bit more.
> 
> _Keyboard_ appears to be right - financial spread betting is not in any way like sports spread betting. (I wish she wouldn't gloat, you can't be expected to know *everything*.)


 
Fair play to for trying to convince Brendan harchibald - My hat's off to you.
I'll be surprised if your effort at convincing him works though.

I've repeated that very point endlessly yet Brendan seems determined to keep going back to the flawed analogy of sports bookies.
(For any newcomers to the thread : Brendan mistakenly assumes financila spreadbetting is gambling as opposed to betting because he mistakenly assumes they operate like sports bookies do - and try as I might, it seems there ain't no shifting his mindset)


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## Duke of Marmalade

*Re: The difference between Investing and Gambling*

_Keyboard_, I have applied for an individual Delta training course for tomorrow afternoon.

In another thread you say that Worldspreads is "no brainer" better than Delta.

I looked up Worldspreads but it doesn't seem to do individual Irish shares, which would be my main interest.

Am I correct in that?


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## Brendan Burgess

*Re: The difference between Investing and Gambling*

Hi Harchibald


Market return = Punters' gains (losses) + provider's gross profits 

What I don't get is who provides the market return? 

Punters' gains + provider's gross profits must be funded by someone unless they are buying the market themselves? 

Brendan


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## Duke of Marmalade

*Re: The difference between Investing and Gambling*

_Boss_, the point is that they *are* buying the market or they should be to hedge themselves. 

The punter is a holder of a *virtual* geared position in a share. Delta say they hedge this with a *real* position - that's what provides the market return. If Delta do not hedge as they say they do then it is they who are the gamblers.

It is absolutely no different from CFDs nor from holding the real position directly, except as to costs which in the real situation are much greater in the short to medium term but ultimately become less as the cost of rolling over the virtual position eventually drag it down.

This is not spread betting as I, an inveterate punter, understood it. The persistent insistence on calling it "betting" is clearly to preserve the favourable tax treatment and probably to avoid other onerous requirements of conventional stockbroking.

Incidentally, a short position must always be gambling unless it is hedging a long direct holding or unless the punter knows sumfin' the rest of us don't.


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## z106

*Re: The difference between Investing and Gambling*



Harchibald said:


> _Keyboard_, I have applied for an individual Delta training course for tomorrow afternoon.
> 
> In another thread you say that Worldspreads is "no brainer" better than Delta.
> 
> I looked up Worldspreads but it doesn't seem to do individual Irish shares, which would be my main interest.
> 
> Am I correct in that?


 
Harchibald - worldspreads do all (at least most of - i didn't do an exact one by one tick off) of irish shares.

And as i said - they offer a refund of up to  a max of  €750 of losses after 8 weeks trading.

You must tell them where you saw the ad - I saw it in the 'investor' magazine.

They also claim to have the tightest spreads - (they often give specific examples in their ads compared to their nearest competitor(obviously delta index)).
You may need to do a proper comparison to verify that fully.
I assume they are not telling blatant lies in their ads though - perhaps they are being selective in the eamples they choose though.

ANyway - for the refund factor alone they are better in my book.

I also did the delta index 1 hour course - i then subscribed to worldspreads after they told me they do not offer any such introductory offer of refunds.


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## Brendan Burgess

*Re: The difference between Investing and Gambling*

Harchibald

Thanks for that clear explanation, but I still don't get the purpose of it.

Would the "spreadbetting" company not be better off buying and holding the shares. Why do they take "spreadbets" at all? 

Or are there sufficient people selling the index at the same time,to match those buying the index? Presumably these sellers are then gamblers? 

Are people who buy the index or individual shares through a "spreadbetting" company not better off buying directly themselves with borrowed money? Are they not sharing their profits unnecessarily with the "spreadbetting" company?  The "bettor" saves CGT, but surely the company must pay stamp duty and CGT and income tax on the dividends. 

There is still something not fitting together here for me yet.

Brendan


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## Duke of Marmalade

*Re: The difference between Investing and Gambling*



Brendan said:


> Harchibald
> 
> The "bettor" saves CGT, but surely the company must pay stamp duty and CGT and income tax on the dividends.
> 
> There is still something not fitting together here for me yet.
> 
> Brendan


 
_Boss_, I can see you're stuggling here, and you may be right, but I don't think so. I will report back from my training session.

I will be asking those very same questions but I think I know the answers. Delta is entering futures derivatives - hence no stamp duty, it too never owns shares. Delta is taxed on profits not on capital gains + income.


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## Duke of Marmalade

*Re: The difference between Investing and Gambling*



Brendan said:


> Harchibald
> 
> Would the "spreadbetting" company not be better off buying and holding the shares. Why do they take "spreadbets" at all?
> 
> 
> Brendan


 
I missed this main point.  The point is that the spreadbetting company is an intermediary - it makes money on its spread.  If you believe markets will in the end outperform, sure take a primary position, but you may as well ask the same question of stockbrokers.


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## ccraig

*Re: The difference between Investing and Gambling*

Some of these spread companies claim to offer a spread of just 1 pip. How can that be as it doesnt allow any margin for them. Has anyone tested the system to see that it is 1 pip?


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## Zoran

*Re: The difference between Investing and Gambling*

Spread betting is the zero sum game as it is based on futures.
Futures and options are zero sum game as they are derivatives.
Derivatives are not making money.
Stock market is not zero sum game as it is growing more then the inflation for last few hundredth of years.

Spread betting is the invention for companies to make money easily from people that are usually small non-professional investors (or better they are mostly gamblers without the edge) by charging them on transactions.
You can try it, double money easily even in 1 day and then you will think you know this and next day or year burn all that money.

You need usually to do a lot of transactions as it is leveraged and it is not the long term strategy (for me mainly due to the leverage as volatility of the underline security is making it unbearable loss, e.g. 3% down and you are 100% down, 6% down and you need x3 your deposit on spread bettors account - this example is for the crude oil with around x36 leverage)
CGT free is great but believe me you would like to be able to offset your losses from the real stock market positions as the profit from spread betting is less likely 

Mark Shipman used to have the link on his trend following site with the current spread betting positions (without explaining how much money or pips is invested) but it is removed from the site. Why?
Why there is not any quantitative and descriptive strategy in the book?

Do you think you will be better in zero sum game with pros (market makers) on the other side of the bet?
Do you have the strategy that is tested and proved to work over a long time (or short if you know when to stop)?

In spread betting with such leverage if you have the winning trading method with the marker edge you must earn more % points then on the simple stock market, to say 50% or 100% per year. That will make you so wealthy in just a couple of years.
Spread betting is the hope for people to become rich or better wealthy the fast way. But common then somebody needs to loose all of that on the other side.
The only problem is that only a couple (or tiny %) of people are actually making huge money out of it and that means huge % of people are loosing money to fill their pockets.
Do you want to take your chances and face the pros (or just lucky people)?
Anyway spread betting companies are making money as they are earning money no mater are you loosing or winning.

If these people (who knows the strategy) are so wealthy why they need to earn money on cheap seminars and writing books every year (excluding academics and others who are writing mostly for glory and to earn the Nobel prize).
Common, I will be on some sun and relaxing and not traveling to Dublin to perform some seminars.
Of, I will probably not be writing this post in here 

Direct stock market is not zero sum game but rather creating the value over time. Such value is eaten from us by hungry financial machine through the management fees (e.g. brokers, fund managers, fin institutions as market makers). Active funds with high management fees are usually not outperforming the average market return on the long run.

Please, read some academic work on this, avoid expensive mistakes and do proper investments through the stock market (or your own business or something that is making the value and where you are pro  and not the sheep). The portfolio of proper passive index funds are the way to go for individual investors long term. Active managers are not outperforming their benchmark index over the long run. Just think that you need to invest at least 20-30 years till pension and that you will need something to eat then and hopefully leave something to your children.
If you do not care then go and try your luck with spread betting or similar but please do that with small money first or even so called paper trading.

If somebody has the winning method for spread betting please send me or publish it.
Joking of course, if you have it you will guard it till you are so wealthy either by using it or selling it to some big institution.
What do you think if you are making the big bucks on the market that somebody will not come to you and try to buy the secret formula or give you the job?

I will try to continue this conversation and I help only 1 of people reading this I will be very happy.
I was lucky that I have a friend, professor on one of the most prestigious university (not making him more smart in investing as you should never listen without checking it out) who  dragged me out from the  hole of trading/active stock picking or to say some kind of "gambling".

Please, stop pushing luck and spending money on bad books/seminars and even worse loosing money on wrong methodologies and wrong investment vehicles.
At least post pone it till you read and learn the pure facts around it.

Cheers.


----------



## bankrupt

*Re: The difference between Investing and Gambling*

Zoran, I suggest you re-read the thread, especially Harchibalds' comments.  You seem to have misunderstood financial spread betting in the same way as Brendan.  Shipman suggests using SB as an investment vehicle, holding unleveraged positions for the long term and changing these positions no more often than once per week.  I have no reason to doubt that he has made a personal fortune in investment and he states himself in his book that he does not need the income from his seminars and publications.  Perhaps this is not the case, however his investment strategy is so conservative that I find it unlikely he is another snake-oil merchant.


----------



## Brendan Burgess

*Re: The difference between Investing and Gambling*

Zoran 

I think that most informed people, after reflection on the issues,  realise that spread betting is gambling and not investing. 

However, Harchi makes the interesting point that financial "spread betting", is not actually spread betting. Now if someone wants to rename long term buying and holding of shares as "spread betting", then that type of "spread betting" is, of course, not gambling. 

I don't know if Harchi is correct or not. He was doing a course and we are awaiting his report. 

Brendan


----------



## Zoran

*Re: The difference between Investing and Gambling*

Let me reply to both bankrupt and Brendan here.

>Zoran, I suggest you re-read the thread, especially Harchibalds' comments. 

I did read the whole thread already so that is why I wanted to post something to drive people from such hard way to earn money (rather to say easy to loose money).

>You seem to have misunderstood financial spread betting in the same way as Brendan. 

Sorry that I did not use financial in front of spread betting.
I was talking about financial spread betting all the time.

>Shipman suggests using SB as an investment vehicle, holding unleveraged positions for the long term and changing these positions no more often than once per week. 

How are you doing unleveraged holding on GOLD?
If it is long term what is that to do with changing positions once per week?
You must be doing it daily so per week is more long to you?

The long term for me is 10, 20, 30 years to say till pension.

>I have no reason to doubt that he has made a personal fortune in investment and he states himself in his book that he does not need the income from his seminars and publications. 

Why not? Did he posted any results that we can check?
Did he earned money rather on properties and horses as even stated in his book or articles? I do not know, but do you?
If he is so wealthy why would he travel around and pick cheap money from seminars?
What is the idea of writing the second book getting out soon?
Why would we believe descriptive methods from his book?

>Perhaps this is not the case, however his investment strategy is so conservative that I find it unlikely he is another snake-oil merchant.

What strategy? Did you get correctly his exit strategy and money management strategy from his book? 
I have not attended the seminar and will not but read the book.

>However, Harchi makes the interesting point that financial "spread betting", is not actually spread betting. Now if someone wants to rename long term buying and holding of shares as "spread betting", then that type of "spread betting" is, of course, not gambling. 

financial spread betting is the zero-sum game as somebody on the other side needs to loose if you are winning.
Keeping the real stock on the stock market is not the same as being long on the same stock through spread betting company.

>I don't know if Harchi is correct or not. He was doing a course and we are awaiting his report. 

If he is correct I will not post this thing here.


----------



## bankrupt

*Re: The difference between Investing and Gambling*



Zoran said:


> If it is long term what is that to do with changing positions once per week? You must be doing it daily so per week is more long to you?



Shipman's strategy is long term (well perhaps medium term, if you insist that positions must be 10,20 years to be long), holding positions for as long as they are rising, reviewing them once per week.
It's important to also note that he does not insist that the reader should use FSB, he discusses the various options and recommends FSB as the most efficient method to follow his investment strategy but you could just as easily trade shares through a broker.  



> Why not? Did he posted any results that we can check?
> Did he earned money rather on properties and horses as even stated in his book or articles? I do not know, but do you?
> If he is so wealthy why would he travel around and pick cheap money from seminars?
> What is the idea of writing the second book getting out soon?
> Why would we believe descriptive methods from his book?



Do you have reason to believe that he is lying about his net worth and investment success?



> What strategy? Did you get correctly his exit strategy and money management strategy from his book?
> I have not attended the seminar and will not but read the book.



His strategies for money management and exit are reasonably clear I thought, he does not pretend that they are perfect, in particular he states that using his exit strategies can often mean losing out on maximum profits (but will protect from losses).  Above all, he emphasises the need for the reader to continue research and provides a hefty bibliography, he does not pretend to know everything!



> Keeping the real stock on the stock market is not the same as being long on the same stock through spread betting company.



This is the nub of the question, if I have money to invest long-term, what difference does it make if I decide to use FSB rather than a broker? (there are tax implications of course but obviously I can profit using either method and both are investing).

I came across a good article here on the original topic:


----------



## Zoran

*Re: The difference between Investing and Gambling*

>Shipman's strategy is long term (well perhaps medium term, if you insist >that positions must be 10,20 years to be long), holding positions for as >long as they are rising, reviewing them once per week.

If you are reviewing it every week that means you may conclude to exit or entry something else. This is far cry of long term investing.
That is not even the medium term investing I believe.
He is mentioning keeping the position for a couple of months or even years.
With his strategy described in the book it looks almost impossible.
Did you try to backtest his method in any trading SW?

Did you try to keep the NASDAQ, crude oil or my god some volatile stock with the spread betting company?
I did and believe me in a split of seconds (minutes or so) it can wipe your deposit (invested money) and if you are not careful to close the position you will need a multiple of deposit required to keep up the deposit + loss.

They are all talking about GOLD as it reached its peak, but what about the crude oil, NASDAQ and other picks. The whole link from his site vanished. Why?

>It's important to also note that he does not insist that the reader should >use FSB, he discusses the various options and recommends FSB as the >most efficient method to follow his investment strategy but you could just >as easily trade shares through a broker.

FSB is the least effective method to do anything. 
His book is about trading commodities and not shares. He did not touch  anything around the stock market in his book. 
If you do not have the full trading strategy how you are going to make it in FSB or futures or any other derivative way.
Do you have a good strategy for the direct stock market that is not zero-sum game?

I assume you consider you can beat pros in futures market (FSB is worse derivative of futures).

>Do you have reason to believe that he is lying about his net worth and investment success?

I do not believe he made the money with the FSB, at least it is never shown or posted anywhere.
In a small amount of articles about him I only concluded he made the money in properties and horses if I remember clearly.

>His strategies for money management and exit are reasonably clear I thought, he does not pretend that they are perfect, in particular he states that using his exit strategies can often mean losing out on maximum profits (but will protect from losses). Above all, he emphasises the need for the reader to continue research and provides a hefty bibliography, he does not pretend to know everything!

So, would you tell me his exit strategy clearly please?
Tell me what is his money management strategy?
How much will you invest in his picks ,what percentage of your overall portfolio? 2%? 10%? How big loss you will bear?
Did he teach you about the risk for that hefty reward?

Believe me you have no clue in what you are going to invest as anything can happen in short future. 
The only thing known is that over 100's of years the stock market is going up, the commodity prices are over long time following inflation, ....
Everything else is pure speculation on the short time and does not depend on you but rather big players, market players who has powerful systems and methods to extract money.

Do you believe you will make money over a long time (that you need if you want to leave something to your family) this way?

>This is the nub of the question, if I have money to invest long-term, what >difference does it make if I decide to use FSB rather than a broker? (there >are tax implications of course but obviously I can profit using either method and both are investing).

The FSB way is leveraged from 10-50 times. MEaning if you pick the stock and stock goes 4% down (very often can happen in 1 or 2 days dependant on particular stock volatility) you loose all your money.
Then, because you know the market will go up tomorrow you do not care, then the stock goes down again and you are in absolute loss.
When you will go out? You will believe in that stock?

So, you will profit FSB way even faster, but if things go south you are screwed as FSB broker will chase you to top-up the account with more and more money. 

The difference is unbearable risk that you need to limit with the proper trading strategy that has an edge so you can consistently beat the market and make money.

In the direct stock market smart people recommend the diversified portfolio of passive indexed funds (or ETF's when funds not available). They should be with very low management fees (e.g. 0.1% up to maybe 0.5%).
Of course this is still science fiction management fee in Ireland but it will come soon.


----------



## Duke of Marmalade

*Re: The difference between Investing and Gambling*



Brendan said:


> Zoran
> 
> He was doing a course and we are awaiting his report.
> 
> Brendan


 
Sorry, _Boss_, I never got that course, not even a reply, I've gone off Delta Index.

I see Paddypower are in on the act which makes me real nervous that it is conventional spread betting after all. But close scrutiny suggests PP is similar to Delta. Only offers daily rollover on Irish shares but with a spread of only .25%. Also borrowing costs are only 2% over ECB, Delta is 3%. PP looks better, but anyway I would prefer quarterly futures, which PP doesn't do.



> financial spread betting is the zero-sum game as somebody on the other side needs to loose if you are winning.
> Keeping the real stock on the stock market is not the same as being long on the same stock through spread betting company.


 
Jayz, _Z_, you're even more of an ol' wind bag than me. But this clip suggests you ain't been paying attention. The spread betting company does hold a real economic interest in the stock on your behalf.

_Bankrupt_, that was a reasonably interesting link, even if it did make _Z_ seem the model of brevity. Interesting it brings in the concept of speculation, as suggested by our leader.  Anyway there was no final definitive answer. But I have come up with that answer here on AAM, in a previous post.


----------



## Zoran

>Jayz, _Z_, you're even more of an ol' wind bag than me. But this clip >suggests you ain't been paying attention. The spread betting company does >hold a real economic interest in the stock on your behalf.

Would you agree that spread betting is based on futures market?

If yes then it is zero-sum game or to say negative zero due to transaction cast paid to the spread bettor.
http://www.investopedia.com/terms/z/zero-sumgame.asp

Please explain where the spread betting company covers your position with the stocks and how?

What is the price of the gold or NASDAQ based on? 
Is it not maybe futures market + potential spread betting company tweaking?


----------



## Duke of Marmalade

The futures market is not a zero sum game for those who are long. The futures price of a share is its current price plus the risk free rate, which is less than the expected future price. That's the paradox. 

There is only one real market - the primary market - it delivers positive returns. All derivative markets have to relate back to that primary market and deliver similar returns for those who are long.

Let's try one more time (this is long folks, really only suitable for Z)

We mostly agree that, all things equal, shares grow at more than the risk free rate - because capital adds value. As time moves on the price goes up.

If you take a long position, no matter what the vehicle, you benefit from that added value drift. 

The "shorter" at the other end of that position is losing that drift. She either has a "naked" short position in which case she is gambling, or it is hedged possibly against direct holdings.

Delta says they automatically hedge, PP don't mention that (they are mainly targetting Sun readers who would wonder what gardening has to do with it).

This is completely different from a spread bet on, say, the number of US Gold Medals in this summer's Olympics. As time goes by, all things being equal, the prices will stay the same. There is no basis for expecting an added value drift because the underlying entity is not adding economic value.

When it comes to gold or commodities I think these are closer to Olympic Gold Medals than shares - no inherent reason to expect an economic added value drift (except inflation).


----------



## Duke of Marmalade

Downloaded PaddyPower T&C.

Their headline product info for Irish shares is that they charge only .25% spread and ECB+2% for the leverage.

Small print reveals this not to be the whole story.

The .25% is not a spread at all - it is a charge in addition to the quoted spread. In other words, using their example, they might quote Ryanair at 6.00/6.06. You buy at 6.06, sell at 6.00 and then get levied .25% - that's a 1.25% spread in my book. For trades with virtual value of over 30K they seem to let you settle at mid market so the spread for big bets is .75%.

However, I am p...d off at the attempt to pull the wool over my eyes (unless I have misunderstood the T&C). The Delta stuff seems much more above board in its presentation, and seems after all to be cheaper than PP, nowithstanding the leverage costs being ECB+3%.


----------



## Zoran

Harchibald said:


> The futures market is not a zero sum game for those who are long. The futures price of a share is its current price plus the risk free rate, which is less than the expected future price. That's the paradox.



I will just quote Rick Ferri, one of the book authors I admire:

*****************
 Commodities have an expected real return (inflation adjusted) of zero percent. Although an investment in commodities may reduce portfolio volatility, adding commodities also reduces portfolio return. And as the old Wall Street saying goes, 'You can't eat risk adjusted returns'. 

 Commodities are not ongoing entities and they are not securities. The do not earn money or pay interest. For example, gold and oil earn no revenue and pay no interest or dividends. They just sit there, costing you money while you hope for them to go up in value. 

 IMO, stick with securities that earn interest, pay dividends from earnings, or have the potential to pay dividends from earnings. 

If you are an active trader, please disregard all of the above. Commodities are a trading vehicle, not an long-term investment.
**********************

I will just mention that at the moment there is the fight between academics and book writers around something called CCF that are actually fully-collaterilized commodity futures. 
They are not leveraged at all so the name fully-collaterilized.

Just to mention that is nothing even near what you are investing in as your investment is in 3 commodity chosen by one of the simplest technical trading method for mid term trading (not to say short trading).    

One thread about the fight of two respectful book writers on the "proper investment long-term discussion related forum" around CCF is here:



Two book writers I admire that fight in this thread and you can find it on google easy are Rick Ferri and Larry Swedroe.

If you want more academic work on the commodity futures and other topics you can find it here: http://www.ssrn.com/ 

Do not forget that academics are writing and working for glory and Nobel Prize while many others just for money.




Harchibald said:


> If you take a long position, no matter what the vehicle, you benefit from that added value drift.



You picked 3 commodities based on the medium term simple technical trading method that can be easy backtested in almost any trading SW for validity (if we have the exit strategy clear due to Shipman's 4 methods descriptive exits).

You leverage the positions 10x.
Even without the leverage you are just market timing your entries medium term and that is trading.
You are saying I will look every week am I going to exit or not.
You probably never read books around futures from Schwager and others to see the complexity of beating the futures through the market timing and trading.

Did you calculate the costs of spread betting due to rolling the position and  difference between near future contracts?

OK, let me give you one link just to point you out what computer power out there is against you. That computer power is evaluating thousands of technical trading methods non-stop to get valid academic work on the risk/returns from futures, stock market and everything known in finances.
This is just one article to point you out that they tested over 7000 technical rules on 15 commodities:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1003064

Did you try the simple moving average back tests on commodities to validate what Shipman's is proposing worked in the past?

Of course this does not mean if it works in the past will work in the future but at least if it did not work in the past will probably not in the future.


----------



## Zoran

*Re: The difference between Investing and Gambling*



bankrupt said:


> This is the nub of the question, if I have money to invest long-term, what difference does it make if I decide to use FSB rather than a broker? (there are tax implications of course but obviously I can profit using either method and both are investing).



Sorry bankrupt for coming back to your sentence.

Did you ever calculated the cost of owning the stock through the spread betting company?

So you should include the spread you are paying on, the conversion rate if it is not owned in euro back and fort, what you are paying for rolling positions, discrepancy prices between real futures price and spread betting house price and probably things I forget.

If I am keeping something really long term CGT is not kicking off till the end while I am compounding my money tax free.

Spread betting companies traded CGT rule that small number of pros in this zero-sum game are applying to attract small individuals to loose money.
I believe that spread betting is the great invention after pure gambling as it is attracting the smartest people.

It is a challenge but the wrong one and with the wrong ending in loosing hard earned money.


----------



## Duke of Marmalade

_Z_, most of your stuff is way over my head.

I'm a simple guy. I'll try one more tack. In financial spread betting, as with futures, you are not actually trying to guess the future price. Maybe that's the confusion. If a bookie were to lay odds on a future price - even money higher or lower, he would pick a higher price than in the spread betting and then we would of course have straight gamble. 

Instead spread betting is in effect a today purchase settled in the future. So the price quoted is today's cash price plus interest, even though the market in general expects that the actual price in the future, when settlement takes place, will be higher than that.

The market expects that you will "win" on a long futures position.

That's why Delta hedges. Maybe their counterparty hedges also and so on, until ultimately someone is short, either as a gamble or as a hedge against a primary holding.

Yes, Futures/spread betting indeed any derivative market are in themselves a zero sum game (ignoring costs) but the bias is for the longs to win and the shorts to lose.


----------



## Zoran

Harchibald said:


> _Z_, most of your stuff is way over my head.
> 
> I'm a simple guy. I'll try one more tack. In financial spread betting, as with futures, you are not actually trying to guess the future price. Maybe that's the confusion. If a bookie were to lay odds on a future price - even money higher or lower, he would pick a higher price than in the spread betting and then we would of course have straight gamble.



Sorry about the complexity.
You should be simple and invested in simple things that are making you money for a sure on the long term.
I am sure that this money is not something you will spend very soon.

Playing with futures (and options) here through spread betting is the most complex in the financial world where pros are dominating and market makers are making money while small individual investors are loosing money.

Just imagine what big banks, hedge funds and others having in their arsenal: powerful computers (some of them have 1000's of big servers to process information instantly, direct market exposure through the futures market, smart people who knows about investments,  a lot of information sources we can only dream of, ...

Have you seen how a lot of hedge funds died or closed due to the fierce fighting between pros. 
We are here just the collateral damage 

Just simple to tell that taking the single positions in stock and commodity are very risky as you have no clue what will happen with the price.
When you add the leverage you are actually gearing your faith and taking higher risk and usually due to the weak trading strategy not lasting too long.

Smart people should not do that but rather diversified into smart passively indexed funds or ETF's dependant what is available.
Why is that is due to the facts that academics proved that active trading is worse then passive long term buy&hold.
The only thing that is for a sure over the few hundredth years history is that stock market is returning value above the inflation.
The commodity market is returning 0% after inflation (somewhere actually stating it is -1%).

What you are doing is market timing with the simplest technical method from 150 pages book with more pages about what is corn and for what is used. As I am thinking more I am seeing the book more and more funny.

You are trying your luck the hardest possible way.
In the US spread betting is prohibited by law.
Also to enter the futures or options market you will hardly be allowed without substantial experience and money behind you.



Harchibald said:


> Instead spread betting is in effect a today purchase settled in the future. So the price quoted is today's cash price plus interest, even though the market in general expects that the actual price in the future, when settlement takes place, will be higher than that.
> 
> The market expects that you will "win" on a long futures position.
> 
> That's why Delta hedges. Maybe their counterparty hedges also and so on, until ultimately someone is short, either as a gamble or as a hedge against a primary holding.
> 
> Yes, Futures/spread betting indeed any derivative market are in themselves a zero sum game (ignoring costs) but the bias is for the longs to win and the shorts to lose.



The problem with taking the single positions, e.g. gold or crude oil are that nobody has a clue but more a guess where the price is heading.

You said the long term it should go up.
OK, lets say you are correct and I am confident that gold will be up in 50 years and probably cover only for the inflation.
If you say to me gold or anything else will be up next 2 years then you know something nobody on this world probably know.
Imagine how much money hedge funds will make from such knowledge.

It is said that all available information is already calculated into the market price and that is called Efficient Market Theory.

You should be aware that if there are not people who goes short then you will not be able to go long. You need to have the counterpart.

Spread betting companies will make the difference in these taking short and long and see do they have the knowledge (again powerful computers, smart people and other things we do not have) and hedge it in the futures market or just do nothing as they know people are wrong.
They will even offset the difference from other things. E.g. they know S&P 500 is highly correlated to NASDAQ so if they have more shorting in NASDAQ and more long on S&P 500 they may do nothing.
They will always earn on the spread, monetary conversion, rolling, ....

Take your profit out or limit the profit with the stop losses and continue your positions to maybe earn more.

But my advice is that you entered no-winning game taking your luck. Luck is usually not lasting long.

Wish you all the best.


----------



## Zoran

dontaskme said:


> Whether or not spread betting is gambling or not is probably a philosophical question with a philosphical answer.
> 
> Also Brendan says "Short term holding of shares is gambling."
> However, afaik from the point of view of tax and law etc., they are taxed differently.



Brendan is totally correct as academic work and proper book writers proved time over time.

Let's be pragmatic and say it this way:

Gambling is everything that is loosing your money over the time period you want your money to grow.

It does not mater how it is called at all from my perspective.

The main issue is to make the money over the long period of time to have it for pension and hopefully to help your children out.
Or to have money for the house deposit or to buy MAn U yearly ticket.

Spread betting is gambling for me as I cannot make the money over the period of time I want with certainty.
Do you?

Do not forget that in spread betting (like in futures and options trading) small number of people are taking excessive amount of money while majority of people are loosing money. And to say in 99% of cases these people are pros and not you.

If you cannot at least preserve your hardly earned money then it is gambling for me.
OK, somebody may say we had periods in our history when you could not preserve the money (e.g. big recessions).
But that is why the long term  investment is the only way you are very certain (low risk) you will earn money and not loose it.

Short term trading is speculating and money can be earned with the proper trading strategy.
The problem is that the odds are not in your favor against all that computer and intelectual power pros posses (big banks, hedge funds, ...).
They are fighting against each other so just listen how big names like Merril or City hedge funds get bust.
And hey they have Nobel Prize winners in this field and all information available, 1000's of servers. 

What do you have on the other side?
We read a few books or a lot of books, maybe attend some investment course and hey we can fight these pros.

Why the hell these stockbrokers or spread betting companies are not compiling the result available for public how we are doing there?


----------



## Duke of Marmalade

_Z_, let's try and agree a few points.

FSB, CFDs, Futures, Geared Direct Trading (GDT) are all the same economic transaction, they only differ in their costs and tax. The first three, because they are derivatives (not sure what CFDs are), are cheaper than GDT in the short term (esp. because no stamp) but because they have to be constantly rolled over GDT will be cheaper in the long run. Delta suggests 4 years as the equilibrium point between FSB and GDT.

We agree (I think) that short positions in the stockmarket are gambling whilst long term holds are investment. What is the cut off point?

You make a big play about the pros having huge computer power and wall to wall Nobel Prize winners. The fact is that FSB prices are determined absolutely from the current cash market - there is no fancy computation or projection to come up with a FSB price - it is the current price plus interest.

The Nobel Prize winners have as much of a clue about whether the current price is right or wrong as the average chimpanzee.

Possibly the computer power and advantages of scale allow them to spot very short term anomalies and exploit them - but I would say in relative terms that is small, maybe 10bp per quarter. But the "positive drift" I referred to earlier for long equity positions is possibly 100 bp per quarter.

I repeat, long FSB equity positions are biased in favour of the punter even after allowing for spread costs. But the volatility of actual outcomes swamps this small bias and makes short term FSB (CFD, Futures, GDT) positions gambling IMHO.


----------



## bankrupt

Zoran,

It seems that your objection is not to FSB per se but rather to investing in individual stocks & commodities in the short term?  It is possible to hold FSB positions for long periods and to use the lack of CGT & stamp to your advantage.  It is also possible to cover your positions without leverage (as recommended by Shipman).   I agree with you that it is easy to lose your shirt very quickly with leveraged positions and Shipman warns against this.

I think I understand where you are coming from - FSB is very often (usually?) a short term leveraged gambling play with all but the most expert traders losing over time.

Shipman however is advising the use of FSB as a tax-efficient way to invest over a much longer term than would be usual with FSB (months and years).  I don't think his approach is gambling even if his trend following approach and belief in commodities are completely misguided.  He also advocates that his approach should only be used in conjunction with the usual range of other less risky investments which is just common sense.


----------



## Zoran

bankrupt said:


> Zoran,
> 
> It seems that your objection is not to FSB per se but rather to investing in individual stocks & commodities in the short term?  It is possible to hold FSB positions for long periods and to use the lack of CGT & stamp to your advantage.  It is also possible to cover your positions without leverage (as recommended by Shipman).   I agree with you that it is easy to lose your shirt very quickly with leveraged positions and Shipman warns against this.
> 
> I think I understand where you are coming from - FSB is very often (usually?) a short term leveraged gambling play with all but the most expert traders losing over time.




Bankrupt,

Yes, I have the objection of individual non professional investors thinking they can make money trading short or medium term.
Academic work proved such fact that even professional active managers on the longer run are under-performing the simple market index (the benchmark they are following when comparing results with - e.g. S&P 500 or any other).

Also do not forget that spread betting and futures or options markets are not making any value and they are in general zero-sum game.

How you are making non-leveraged play in spread betting?
You cannot choose the leverage factor but rather do it yourself somehow.
Why is that? 
Spread betting companies should allow you to do that, is not it?
How you are making such non-leveraged position on 10 years?
Did you calculate costs and everything?

Do not forget to keep something long term you need to play futures game and the pricing and everything around futures is different then in direct market.

With spread betting companies you even do not have long term futures graphs covering 1, 2 or more years.
People are usually using spot price graphs to enter futures positions, do you?



bankrupt said:


> Shipman however is advising the use of FSB as a tax-efficient way to invest over a much longer term than would be usual with FSB (months and years). I don't think his approach is gambling even if his trend following approach and belief in commodities are completely misguided. He also advocates that his approach should only be used in conjunction with the usual range of other less risky investments which is just common sense.



If you are looking every week for exit or entry it is not long-term startegy.
It is market timing based on the simplest possible technical rules.
Those rules can be back tested on historical data easily.
Do you really think it is working?
If yes, test it and then come back and tell me I am stupid.

If it is even in profit such strategy needs to be better then some less risky investment method and also win over the inflation.

Usually the strategy is tested against simple buy&hold strategy over the longer period of time.


----------



## Zoran

Harchibald said:


> _Z_, let's try and agree a few points.
> 
> FSB, CFDs, Futures, Geared Direct Trading (GDT) are all the same economic transaction, they only differ in their costs and tax. The first three, because they are derivatives (not sure what CFDs are), are cheaper than GDT in the short term (esp. because no stamp) but because they have to be constantly rolled over GDT will be cheaper in the long run. Delta suggests 4 years as the equilibrium point between FSB and GDT.



Why would you enter highly competitive leveraged game with the pros in futures/options marker?

You should have the proper trading strategy with an edge, back tested across many markets and against long historical data.
Even it is tested on old data it may not work in the future.
 This is really the game for pros as individual investors has no chance apart from being lucky like flipping the coin.
On the long run you will be worse with this as somebody will be on the other side who will get money from you.



Harchibald said:


> We agree (I think) that short positions in the stockmarket are gambling whilst long term holds are investment. What is the cut off point?



Proper long term investment is not gambling.
Even shorting is not gambling for pros who knows something, e.g. these people that will win on the other side of your long position.
Market makers are winning regardless of being short or long as they know there are milk cows on the other side of the position.

What is my point that as individual investor you are taking too much risk in doing investments the wrong way.



Harchibald said:


> You make a big play about the pros having huge computer power and wall to wall Nobel Prize winners. The fact is that FSB prices are determined absolutely from the current cash market - there is no fancy computation or projection to come up with a FSB price - it is the current price plus interest.


 
You are dead wrong. The prices are based on the futures from LSE market.
Look is MAR-08 lower price then FEB-08 for crude and brent oil?
How is that possible, we must have the deflation 

If you are looking spot price graphs and deciding to buy the future (e.g. JUN-08) position you are dead wrong about your entry or exit position.
What you are doing is buying the last available quoter future and then rolling it forever without thinking what is the cost, what is the risk and probably without even having the proper charts as spread betting companies are not providing them.



Harchibald said:


> The Nobel Prize winners have as much of a clue about whether the current price is right or wrong as the average chimpanzee.


 
They do not know what will price be neither but they are putting their odds in their favor by knowing more then you.
E.g. they are testing trading strategies and rules on the historical data and across markets so they know your method is not working in advance.
They also know  academic research  and what is working and what is not.
They have teams of people thinking and information that we cannot grasp or have at all.
At the end the CEO's of stocks they are trading are on their phone list.

If you think you are better then good pros then fine.
I agree you may be better of some pros as they are also loosing money.



Harchibald said:


> Possibly the computer power and advantages of scale allow them to spot very short term anomalies and exploit them - but I would say in relative terms that is small, maybe 10bp per quarter. But the "positive drift" I referred to earlier for long equity positions is possibly 100 bp per quarter.



You are holding just a few positions and that is bad as it is risky.
How the hell you know what you should hold and what will go up or down?
Based on that simplest MA trading system that everybody knows?
Such system is easy to test even in the Excel spreadsheet and you can do it yourself.

Look the Japanese market that did not recover for 15 years or stocks that still did not recover from the last bear market.

Commodities are even worse as they did not produce above inflation long term return. But who knows if Shipman is saying he must know better.
The time will show the future but my bets will be on more certain things.



Harchibald said:


> I repeat, long FSB equity positions are biased in favour of the punter even after allowing for spread costs. But the volatility of actual outcomes swamps this small bias and makes short term FSB (CFD, Futures, GDT) positions gambling IMHO.



Spread betting is invented to be leveraged.
You cannot choose the leverage. Why is that?
They do not like it.

OK, you can choose S&P 500 index and keep it forever in artificially made non-leveraged position, but did you calculate the cost of doing that through the futures market?
Do you have the historical data to prove your strategy is working or will work?

I will buy simple passive indexed ETF or fund with management yearly charges of 0.1% and brokerage fee to buy it and will have it for the spot price and not for some higher future price.
Calculate all costs of owning the future.


----------



## Duke of Marmalade

Zoran said:


> You are dead wrong. The prices are based on the futures from LSE market.
> Look is MAR-08 lower price then FEB-08 for crude and brent oil?
> How is that possible, we must have the deflation


 
Strong words _Z_

Before getting into the oil, I am *dead right* on futures equity prices. Consider the following example - I'll work on a year's futures rather than the usual quarter's, so as to use more familiar percentages.

Say the spot price of XYZ stock is 100, and the FSB 1 year price is 110 and you can borrow at 4%. 

Sure profit strategy:

Sell FSB at 110.
Borrow 100
Buy XYZ at 100

In a year's time, let's say XYZ is 200 (doesn't matter what it is) 

Settle in FSB for a loss of 90
Sell XYZ for 200
Pay back loan of 104

Hey presto, a profit of 6, guaranteed no matter what happened, and I didn't have to put a hand in my pocket.

*The FSB future price of a traded equity has to be the spot price plus interest no matter what you or everybody else thinks is the most likely actual price in the future.*

Trust me, I am right on this and not just because Delta states that is exactly how they calculate their prices.

Now the Oil is interesting, and you are dead right http://data.tradingcharts.com/futures/quotes/SC.html does expect oil to fall in price over the coming months.

Because of the physical nature of Oil there are complications storing it as a long position or being physically short of it. Say we wished to profit from the falling future prices we would need to borrow oil today, sell it in the cash market, buy it back more cheaply from a futures position and then give it back with interest. The problem is who is in a position to physically lend you barrels of oil?


----------



## Zoran

Harchibald said:


> Strong words _Z_
> 
> Before getting into the oil, I am *dead right* on futures equity prices. *The FSB future price of a traded equity has to be the spot price plus interest no matter what you or everybody else thinks is the most likely actual price in the future.*


 
Ah, sorry for hard words.
My only intention by spending time on this is to learn more and maybe grasp something I do not understand while offering other people to judge.
Also to offer people opinion that what looks simple is hardly that.

What is the spot price of FTSE 100 and S&P 500 and the price for MAR-08?

So we now know the price may be in contango or backwardation.

How are you calculating the risk of contango in your long term futures holding strategy?
Is this factored in your cost of keeping long term position?

Look this table where what commodity is at the moment:
http://indexuniverse.com/index.php?option=com_content&view=article&id=3215&Itemid=42

OK, so your simple investing strategy becoming more and more complex, is not it?



Harchibald said:


> Trust me, I am right on this and not just because Delta states that is exactly how they calculate their prices.


 
One addition to above is are prices of the offered futures the same for all spread betting companies and why not?
Are they all automatically tracking the futures market or they can also have their own mathematics involved?

Is that additionally complicating the simple strategy to invest money? 



Harchibald said:


> Now the Oil is interesting, and you are dead right http://data.tradingcharts.com/futures/quotes/SC.html does expect oil to fall in price over the coming months.



Is that good or bad?
So, would you go long with oil by your strategy and what future you will buy?

I assume you know how to invest in futures through the spread betting company?

It is all dead simple.


----------



## Duke of Marmalade

Zoran said:


> Ah, sorry for hard words.
> How are you calculating the risk of contango in your long term futures holding strategy?


 
I presume by contango you mean rollover. This is half the spread on Delta. It is they who say 4 years is the equilibrium point between the cash market and the FSB market. I haven't checked their sums, but I presume they are allowing for rollover/contango costs.


----------



## z106

Zoran said:


> Spread betting is invented to be leveraged.
> You cannot choose the leverage. Why is that?
> They do not like it.


 
Zoran - why do you say that?

You raised that very topic a couple of days ago and i outlined how you were in fact incorrect.
I explained how you choose your own leverage with spreadbetting.

Obviously you just chose to ignore that fact and continue thinking you were right.

SO - read the thread again.

It might be an idea to consider you may be wrong on some things.

http://www.askaboutmoney.com/showthread.php?p=554036#post554036


----------



## z106

*Re: The difference between Investing and Gambling*



Brendan said:


> I think that most informed people, after reflection on the issues, realise that spread betting is gambling and not investing.
> 
> However, Harchi makes the interesting point that financial "spread betting", is not actually spread betting. Now if someone wants to rename long term buying and holding of shares as "spread betting", then that type of "spread betting" is, of course, not gambling.
> 
> I don't know if Harchi is correct or not. He was doing a course and we are awaiting his report.
> 
> Brendan


 
Brendan - it is very frustrating that you continue to say that 'informed' people realise that spreadbettiung is gambling and not investing.

In fact - the very opposite is true.
ANyone who is properly informed will realise the opposite.

ANoyone who thinks otherwise only *think* they are informed based on incorrect assumptions when in actual fact they are not.
You Brendan, are clearly one of these people.

Anyone who has read up on spreadbetting will come to the informed opinion that it is not gambling.
(i.e. Based on teh definition of gambling and investing as outlined by brendan earlier - a definition that i personally would go along with)

The 2nd part of your post is more accurate.

The main point anyone needs to take away from this whole argument is as follows:
*Spreadbetting is basically identical to CFDs !!*

And that,my friends, is absolute fact having taken the time out to research both.


----------



## Zoran

qwertyuiop said:


> Zoran - why do you say that?
> 
> You raised that very topic a couple of days ago and i outlined how you were in fact incorrect.
> I explained how you choose your own leverage with spreadbetting.
> 
> Obviously you just chose to ignore that fact and continue thinking you were right.
> 
> SO - read the thread again.
> 
> It might be an idea to consider you may be wrong on some things.
> 
> http://www.askaboutmoney.com/showthread.php?p=554036#post554036



OK, I agree that you can make it non-leveraged yourself.
That is what CCF funds and ETF's are mainly doing.
But that is not possible through the spread bettors in systematic way.
I am just curious why. It must be easy for them to allow people such thing.

But that is not making you correct about the main topic at all.
What you are doing is gambling as you have no trading strategy, at least what you posted here.

You used leverage 10x so why?
You are invested in 3 commodities only. Is that diversified? How big risk it is?
Are you recommending the same to other people?

I would like to see at least one person to reply to this and tell me he has non leveraged position including you.

If it is not leveraged then the point in investing through the futures market (read hard way due to many things) looks pointless.

Commodities are tracking the inflation and even under-performing it on the long run. That is a proof.
That means you are entering commodity market leveraged to market time it and through speculative nature of investment gain big profit.

Do not forget you cannot based your strategy on lucky 2 months and 3 non-diversified positions.

If I want to win some competition in investing I will put all my money in something crazy leveraged and in one position and pray it will go up.
I probably have some chance (even maybe 50%) to win the competition that way.

But I will not say this is investing at all.

What you are saying and what you are doing is different. Why?

And please, I am replying to all your questions. Please try to answer my main questions so to see who is more wrong.


----------



## Zoran

Harchibald said:


> I presume by contango you mean rollover. This is half the spread on Delta. It is they who say 4 years is the equilibrium point between the cash market and the FSB market. I haven't checked their sums, but I presume they are allowing for rollover/contango costs.



Say you rollover MAR-08 to SEP-08.
You believe that will cost you a half a spread.
But what is the spread when you are in contango is actually the difference between: sell of MAR-08 and buy SEP-08 at the rollover time.

Think it twice if you believe it will be only 4 points (if the spread on future is 8 points - example).

It may be huge difference.

I asked you earlier is your spread bettor offering you real futures long term charts so you can see jumps between rollover periods or you have continuation graphs.

Or I will rather say you are looking spot price graphs and deciding your strategy without knowing what it may cost you in reality and what is the discrepancy in future price.

Also, do not forget that even spread betting price may not be in line with real futures price from LSE market (Pryor's book).


----------



## Zoran

*Re: The difference between Investing and Gambling*



qwertyuiop said:


> Brendan - it is very frustrating that you continue to say that 'informed' people realise that spreadbettiung is gambling and not investing.
> 
> In fact - the very opposite is true.
> ANyone who is properly informed will realise the opposite.
> 
> ANoyone who thinks otherwise only *think* they are informed based on incorrect assumptions when in actual fact they are not.
> You Brendan, are clearly one of these people.
> 
> Anyone who has read up on spreadbetting will come to the informed opinion that it is not gambling.
> (i.e. Based on teh definition of gambling and investing as outlined by brendan earlier - a definition that i personally would go along with)
> 
> The 2nd part of your post is more accurate.
> 
> The main point anyone needs to take away from this whole argument is as follows:
> *Spreadbetting is basically identical to CFDs !!*
> 
> And that,my friends, is absolute fact having taken the time out to research both.



I will backup Brendan as he is to say 99% correct for individual investors.

Only one point is that trading (spread betting, market timing, futures, options, CFDs, ..) is not gambling if you have the winning trading method with an edge against other players in the game.

Short term trading is zero-sum game so you are against other people.
Small number of people (usually pros or smart individual investors) are wining almost all the money while majority of people either loosing it fast or slowly decreasing their money over time.

Do you have the knowledge what is that you are investing in?
      e.g. for spread betting you need to master futures market
Do you have the winning trading strategy?
Did you put it on the paper so you know how to behave each step or problem arise?
Did you back tested it?


----------



## Duke of Marmalade

> Say you rollover MAR-08 to SEP-08.
> You believe that will cost you a half a spread.
> But what is the spread when you are in contango is actually the difference between: sell of MAR-08 and buy SEP-08 at the rollover time.
> 
> Think it twice if you believe it will be only 4 points (if the spread on future is 8 points - example).
> 
> It may be huge difference.


 
_Z_, you are stubborn, and I notice you haven't accepted even one of either mine or _keyboard's_ clear refutation of some of your prejudices.

Referring to the quote, will you please (please, please for just once consider that you had a misunderstanding) accept that a FSB futures equity price is directly and absolutely calculated from the spot market plus interest, even if it is using the LSE futures quotations as the source. Similarly, the futures FX rates are absolutely determined from the spot market adjusted for differences in the interest rates.

Of course, Sep 08 will be significantly higher than Mar 08 because there is an extra 6 months' interest in the price. Do you not get that, _Z_?


----------



## Zoran

Harchibald said:


> _Z_, you are stubborn, and I notice you haven't accepted even one of either mine or _keyboard's_ clear refutation of some of your prejudices.
> 
> Of course, Sep 08 will be significantly higher than Mar 08 because there is an extra 6 months' interest in the price. Do you not get that, _Z_?





Harchibald said:


> Now the Oil is interesting, and you are dead right http://data.tradingcharts.com/futures/quotes/SC.html does expect oil to fall in price over the coming months.



From your chart you posted yesterday:
MAR-08 - 90.77
SEP-08 - 89.43

MAR-08 > SEP-08

It may be true for other things too and not just crude oil at some point in time.

http://www.investopedia.com/articles/07/contango_backwardation.asp

I am accepting that I am wrong about rolling cost as it should be 
a half of the spread of the future.

By the way the main topic here is about spread betting and gambling.

Spread betting is gambling when you do not have the winning trading strategy.
The majority of people are loosing money as the small amount of people are getting huge money as they have the winning trading strategy.
You are against pros and spread betting fees so chances are minimal to success.

If you are feeling lucky or you have the winning strategy go for it Harchibald.

But please leave other individual investors without spread betting as they will save money.

This is not the proper way to invest money and it is not the long term investment strategy at all.


----------



## z106

Zoran - I'm just looking for some quick clarification as to what you are saying.
Very briefly - Are you saying that people should not play the markets at all as it is a zero-sum game and given that there are so many pros in the game then the small investor is bound to lose?

Or are you just saying this specifically about spreadbetting?

Also - do you accept that spreadbetting is the same as CFDs ?

And if you wouldn't mind could you make your answer brief - i can tend to get lost in some of your posts given the length of them.

And by the way - you were asking me in another post how if I geared up tenfold then do I think that is investing or gambling. You felt it was gambling.
The answer is with that kind of leverage I am using then it is gambling due to the potential volatility.
But I am knowingly having a punt there and am not trying to dress it up as a recommended investment strategy.
That doesn't mean that spreadbetting cannot be used as an alternative vehicle for investing - so lets not get too bogged down in my own current positions as I am well aware that it is gambling.

SO anyway - just so I can get an idea of where you're at will you answer the questions above please.


----------



## Zoran

qwertyuiop said:


> Very briefly - Are you saying that people should not play the markets at all as it is a zero-sum game and given that there are so many pros in the game then the small investor is bound to lose?



Individual investors (I assume majority on this forum) that are not pros and with enough knowledge should abandon spread betting, futures and options market. Who thinks 1 book and 10 minutes per week is enough to approach above mentioned vehicles is deadly wrong.

They should invest all their money (or at least majority) in the proper investment vehicles proved by academics and valid books are long term saving strategy. Simple it is long term buy&hold strategy with the portfolio of passively managed funds and/or ETF's.



qwertyuiop said:


> That doesn't mean that spreadbetting cannot be used as an alternative vehicle for investing - so lets not get too bogged down in my own current positions as I am well aware that it is gambling.



Agree. Spread betting, futures market, CFD's and options can be used as alternative vehicle for investing if you know how to do it.
I am just pointing out throughout this discussion it is with huge risk, against pros as it is short term zero-sum game.

You do not need to believe me but you should people who are managing trillions of dollars for tiny management fees of 0.1%, people which books are well accepted and you can discuss with, academics who are working for glory. Biggest world pension funds are invested that way.
The only sure thing from the history is that on the long run the stock market is returning value.


----------



## z106

But hang on - you seem to think that spreadbetting just for short-term trades.

Is this what you're saying?

If it is - and i think it is - then I am saying that spreadbetting can be used for longterm holds as well as short term.

And it is the long term positions that I am referring to when I say that it can be classed as investing.

With spreadbetting you must make c. 5.6% a year before you break even.
Given that the maerket *on average* returns low dounble-digit returns,then you are left with a net return of c. 6%-8% - which isn't bad at all given that it is a leveraged position.

So - which bits do you agree/disagree with from the above?


----------



## Duke of Marmalade

Zoran said:


> I am accepting that I am wrong about rolling cost as it should be
> a half of the spread of the future.
> 
> By the way the main topic here is about spread betting and gambling.


 
Fair enough _Z_, I commend you for accepting the rollover point.

I have stated that IMHO FSB is gambling if pursued on a short term strategy, no more than CFDs or direct trading. 

There is a separate issue arising in this debate: is FSB any different from CFDs or direct trading? The answer is no, and probably cheaper and/or more tax efficient in the short to medium term than its two rivals.

_Keyboard_ is absolutely right - FSB is not in any way akin to conventional sports spread betting, it is an alternative way of investing in the market.


----------



## Zoran

qwertyuiop said:


> But hang on - you seem to think that spreadbetting just for short-term trades.
> 
> Is this what you're saying?
> 
> If it is - and i think it is - then I am saying that spreadbetting can be used for longterm holds as well as short term.



It can be used with the increased risk and praying that the next few years (if leverage is small) or next few weeks (if leverage is high) is not going to wipe you out.
You risk more for more reward due to the knowledge that the market will be very good to you at the beginning.



qwertyuiop said:


> And it is the long term positions that I am referring to when I say that it can be classed as investing.
> 
> With spreadbetting you must make c. 5.6% a year before you break even.
> Given that the maerket *on average* returns low dounble-digit returns,then you are left with a net return of c. 6%-8% - which isn't bad at all given that it is a leveraged position.
> 
> So - which bits do you agree/disagree with from the above?



The only way the history shows the odds are in your favor is if you have the whole market exposure through the cheap passive indexed funds/ETF's without the leverage for longer then 10, 15 years.

Let say we want to make money in the next 20 years.
Do not forget that even 10 years may not give you anything as the worse 10 year period in the past was around 0% return.

OK, let make the most simple portfolio of just 1 world stock index that I have with my spread betting company (iShares MSCI world index - IWRD).
It is new one so we do not have the historical data around it but let trust the biggest ETF maker even they are charging higher management fees then I like.

The current cost of keeping this IWRD with my spread bettor is around 6%. Surprisingly you can buy yearly FTSE index for 2%. Wonder why 
This only confirms what I am saying all the time that futures prices fluctuates and depends on many factors.

Yearly return for probably the least riskiest stock market investment is around 9% per year from 1969 till now.

Non-leveraged position in stock market is not that good as it is more expensive then doing it direct holding way. Who will pay 6% risk premium instead of 0.5% per year to own the world stock market.

Leveraged position - you are increasing the risk and hoping for more reward
What it means look for this unfortunate ETF that started at wrong time and tracking S&P 500 with 2x leverage:


As you can see it is all risk/reward game. You risk more for possible more reward.

If we are going to see a couple of good years above 6% then gearing make a lot of sense. But who knows what is around the corner.
If we somehow know when the next bull market is going to start and then go and put the big leverage and earn huge money that will be great 
It was my dream for a long time and I am not sure did I get rid of it yet.

Do not forget some markets, e.g. Japan are not recovered from 1990 high  after 17 years as it is still more then 50% down.
Of course nobody should own the Japan on its own but that is just the good history example.
Many respectable investors are expecting reduced return from the stock market in the next few decades due to the much higher return in the previous few decades.

You can look some risk/reward graphs on this site as you can drill and see some portfolios and their risk against individual stocks:
http://www.ifa.com/portfolios/

After all of this if you want to try your luck go for it, but at least increase your odds and invest in something that will give you more chance.
Also do that with money you can loose and will not put your life in jeopardy.

Best of luck.


----------



## Zoran

Harchibald said:


> Fair enough _Z_, I commend you for accepting the rollover point.
> 
> I have stated that IMHO FSB is gambling if pursued on a short term strategy, no more than CFDs or direct trading.
> 
> There is a separate issue arising in this debate: is FSB any different from CFDs or direct trading? The answer is no, and probably cheaper and/or more tax efficient in the short to medium term than its two rivals.
> 
> _Keyboard_ is absolutely right - FSB is not in any way akin to conventional sports spread betting, it is an alternative way of investing in the market.



I am not seeing spread betting too much different except that with CFD's you can offset losses while with spread betting you have no capital tax gain.
What you will need more is up to you 
They are both geared so more risk for possible more reward or unfortunate big loss.
To be honest I will pay the government 20% CGT if I can make 100% gain through the spread betting.
It looks more for me as the carrot for people who does not like paying the government while thinking I know how to earn money in spread betting because I am smart.

Do not forget that government suddenly can put CGT on spread betting so your long time position with rolling it every 6 months or so can suddenly become more expensive option then simple buy&hold.

Best of luck and I hope you will recognize some of your mistakes too


----------



## Duke of Marmalade

> Best of luck and I hope you will recognize some of your mistakes too


 
_Z_, I make so very few mistakes I get little practice recognizing them.

You certainly put me right on Oil futures. There is no way lil' ol' me should be dabbling in Oil futures or any other commodity futures or FX futures - that would be pure gambling with the big boys having a significant edge against me.  (However, I could go long Oil futures to hedge my future petrol consumption.)

But as an alternative to direct holdings of shares/share indices FSB is very much in there in my book.

In fact (took that Delta course BTW) the following strategy seems just too good to be true - I will need to confirm it with Delta.

Euro Stoxx 50 FSB appears to trade on 1 per mil spread - yep latest quote is 4185-4189. That is 4bp and it can be rolled over at 2bp per quarter. In my book that is nil costs. Okay you have to deposit 5% margin so at 4% interest rate that's 20bp charge per annum.

Compare this strategy to Quinn Life Euro Freeway - that charges 1% p.a. and has an exit tax of 23% on profits with no symmetry on losses. And as all devotees of AAM know, QL Freeway is the darling choice.


----------



## z106

Harchibald said:


> In fact (took that Delta course BTW) the following strategy seems just too good to be true - I will need to confirm it with Delta.
> 
> Euro Stoxx 50 FSB appears to trade on 1 per mil spread - yep latest quote is 4185-4189. That is 4bp and it can be rolled over at 2bp per quarter. In my book that is nil costs. Okay you have to deposit 5% margin so at 4% interest rate that's 20bp charge per annum.


 
Harchibald - I don't understand this.

Can you elaborate please.

As in - surely the bulk of the cost is in the price discrepancy between the actual current price and the futures price no?
i.e. If you buy long now and the rolling price doesn't move for the quarter then you lose money as the future price will gradually converge with the current price as time passes by up to the last day of the contract ?

As in - isn't the buy-sell spread different again?

Or have i misunderstood your post?


----------



## Duke of Marmalade

_Keyboard_, the fact is that the only costs in being invested in the index via FSB are the spread and the interest foregone on margin.

I prefer not to think of FSB as leveraged investment but as buying shares/indexes for settlement at some future date. Clearly, if you are paying at some future date the price should reflect the cost of that credit. Meanwhile you can have the purchase moneys on deposit (i.e. you are not running a leveraged position in aggregate) -so you only lose the difference between deposit rates and the implied credit rate in the price - but even that is part of the spread - the spread is the only cost of the trade itself.

I must be missing sumfin', too good to be true, anybody see the flaw in my argument?


----------



## z106

i still don't get it.

Can you give an example with figures.


----------



## Duke of Marmalade

Ok, _keyboard_, good challenge.

Let's simplify things. We will assume annual futures rather than quarterly. We will assume the index stays constant at 100. (That of course means the index was a bad investment, but that doesn't matter, we are trying to isolate the cost difference between this and QL Freeway).

Assume dividends are 2% and interest rate is 4%. Ignore the margin, that is a separate cost. Assume a spread of 0.4% (1 per mil per quarter, actually cheaper than that as only the first quarter is 1 per mil subsequent quarters are .5 per mil).

Then the FSB futures price at the start of the contract is 101.8 - 102.2, that is spot price plus interest less dividends then finally adjusted for spread.

Buy FSB forward and deposit 100 in bank. In 1 year's time the price will be quoted at 99.8 - 100.2 that is the spot price adjusted for spread.

You will now have 104 in bank but will lose 2.4 (102.2 - 99.8) on settling the FSB, a net profit of 1.6.

The alternative was to invest 100 in QL Freeway. A year later you will have earned divies of 2 but you will have paid management charges of 1, a net gain of 1.

Thus FBS is .6 cheaper than QL Freeway i.e. a whole 60% cheaper. After factoring in the lost interest on the margin and the fact that the rolling annual spread is less than 4 per mil, still c. 50% cheaper than QL and we know QL are simply the bestest. 

Factor in the asymmetrical tax position and FSB becomes the no brainer way to invest in a tracker fund, irrespective of time frame.


----------



## z106

Ok - i don't know enough of how prices are determined - plus i know niothing of this quinn thing - so i really can't comment on possible flaws in ur logic.

I'm curious as to what other people have to say on it though.


----------



## Duke of Marmalade

qwertyuiop said:


> Ok - i don't know enough of how prices are determined - plus i know niothing of this quinn thing - so i really can't comment on possible flaws in ur logic.
> 
> I'm curious as to what other people have to say on it though.


 
Well, ignore QL, it seems to me that the cost of investing in Eurostoxx 50 through FSB is .5% per annum, and nothing can match that.


----------



## z106

Harchibald said:


> Well, ignore QL, it seems to me that the cost of investing in Eurostoxx 50 through FSB is .5% per annum, and nothing can match that.


 
And as u say yourself - no exit fees of 23% when the price rises.


----------



## Duke of Marmalade

Went to a Delta seminar on Oil futures last night. Fascinating stuff.  One of the techniques is to track the relative positions of the Moving Average 8 days and the MA 34 days.  

8? 34?  Fibunacci numbers stupid.  Sorry I don't buy it.


----------



## Zoran

Harchibald said:


> _Z_, I make so very few mistakes I get little practice recognizing them.


 
How the price is formed is a very big mistake to me as you can see even trackers or indexes can be in backwardation (so the price in the future is lower then the current price) and not to say it can be much higher then the current price also.



Harchibald said:


> You certainly put me right on Oil futures.



Oil is no different then other commodities and stocks.
You have a lot of stocks, funds and ETF's with high volatility that can go down and up every day 2-5%.



Harchibald said:


> But as an alternative to direct holdings of shares/share indices FSB is very much in there in my book.
> In fact (took that Delta course BTW) the following strategy seems just too good to be true - I will need to confirm it with Delta.



Why not if you know what you are doing.
I am unsure about your strategy.
Would you put them down so we can discuss it?



Harchibald said:


> Euro Stoxx 50 FSB appears to trade on 1 per mil spread - yep latest quote is 4185-4189. That is 4bp and it can be rolled over at 2bp per quarter. In my book that is nil costs. Okay you have to deposit 5% margin so at 4% interest rate that's 20bp charge per annum.


 
That is the great example of backwardation where you have SEP-08 price lower then the current price.
That means spread betting company will pay you money for keeping such future and that is good.
But as I said you have no clue where the price is heading so keeping anything shorter then 10 years is not too smart.
Let say you will keep it 10 years or even 5 years so you will be OK next 5 years as you will not have too much costs except around 1-2% for the spread but next few years if things starts going up you will need to pay the premium as the price of the future will most likely be higher then the spot price.
I will also put the uncertainty that the government will not put CGT in the next few years.



Harchibald said:


> Compare this strategy to Quinn Life Euro Freeway - that charges 1% p.a. and has an exit tax of 23% on profits with no symmetry on losses. And as all devotees of AAM know, QL Freeway is the darling choice.



What is the timeframe for your money. From this it looks you will put money for 1 year and expect big profit from it.
This is utopia with stock market where you are getting risk premium from being there for the longer period of time otherwise it is just the luck that year (not too big difference then gambling for me).

For me if I do this through the pension where I am immediate having 25% up to 80% back (I have 80% more money as I am trying not to pay the higher tax).
So I have the most of my money in the pension and buying tracker funds for 0.75% yearly fees.
Not sure what kind of spread betting strategy will give me more.
Even 1% of fees is tiny in this regards.

Is your primary way of investing through the spread betting or this is just for funny money (money you can loose)?


----------



## Zoran

Harchibald said:


> Ok, _keyboard_, good challenge.
> 
> Let's simplify things. We will assume annual futures rather than quarterly.



I do not have yearly futures offered with my spread betting company except for FTSE index.
Do you?



Harchibald said:


> Thus FBS is .6 cheaper than QL Freeway i.e. a whole 60% cheaper. After factoring in the lost interest on the margin and the fact that the rolling annual spread is less than 4 per mil, still c. 50% cheaper than QL and we know QL are simply the bestest.


 
OK, I did not understand your mathematics but I assume your calculation here is based on the current future prices that are lower then the spot price. 
Did you think that the price of the futures will be higher later on as I assume you are not investing the money just for 1 year?



Harchibald said:


> Factor in the asymmetrical tax position and FSB becomes the no brainer way to invest in a tracker fund, irrespective of time frame.



The time frame is a very important factor.
I am trying to invest the majority of my money through the pension so I have an edge against any of your long term spread betting strategies.

If it is after tax money you are saving for something (e.g. house deposit, emergency money, children education, ...) then you should still consider longer period of time then 1, 2 years when playing with equities.


----------



## Zoran

Harchibald said:


> Went to a Delta seminar on Oil futures last night. Fascinating stuff.  One of the techniques is to track the relative positions of the Moving Average 8 days and the MA 34 days.
> 
> 8? 34?  Fibunacci numbers stupid.  Sorry I don't buy it.



Did you expect from them to teach you the long term buy&hold strategy?

These are all some kind of trading strategies you can read in a lot of books or free on the Internet.
Such strategies maybe worked in the past and maybe not.
As you need to have the strategy to beat the current market behavior and change it as the market is changing you have no chance against pros.

Trading, market timing, single stock picking and such things are more pure luck for individual investors then anything else.

The only winning combination that is nothing to do with the luck is to hold the proper for your situation portfolio of cheap passive indexed funds /ETF's (trackers) for a long period of time.
If you can risk your money as you have them a lot then go with the more risk for possible more profit but that will for majority of people be gambling rather then anything else due to luck of knowledge and good trading strategy.


----------



## Duke of Marmalade

_Z_, I would love to engage in all your arguments but I want to keep at least some other contributors in the debate.



> How the price is formed is a very big mistake to me as you can see even trackers or indexes can be in backwardation (so the price in the future is lower then the current price) and not to say it can be much higher then the current price also.


 
Backwardation/contango are not meaningful concepts in the equity/index futures market. An index futures market is really just the spot market with future settlement (by both parties). The differences are simply and absolutely the interest on the delayed payment (which would make futures prices higher than spot) and loss of dividends (which would do the opposite). Any other price would allow an arbitrage by taking appropriate opposite positions in the two markets. The reason there is a futures market in equities is because it is much more liquid than the spot market as you don't need all the mess of transfer of ownership.

At the present time we are coming into dividend season so futures prices on equity indexes are slightly lower than spot prices.

I used annual futures in my examples to ease the math but you are right, Delta only does quarterlys.

The spread plus lost interest on margin are the only costs for being long an index. These amount for the Eurostoxx 50 to about .5% per annum, which is even better than the .75% tracker funds you are investing in. However, I don't know whether pension funds can invest in FSB.

Personally I have 90% of my humble portfolio on deposit and always have. I get my kicks from a tenner each way my namesake to win the Champion Hurdle.

But maybe I should be a bit more adventurous and I do think an FSB position on some index or indexes is a very viable, cost effective and tax efficient long term strategy.

BTW I think you are right, only a matter of time before caught in CGT net but presumably that won't be retrospective and in any case CGT is far superior to the 23% asymmetrical exit tax on the life fund alternative.


----------



## Zoran

Harchibald said:


> Backwardation/contango are not meaningful concepts in the equity/index futures market.
> At the present time we are coming into dividend season so futures prices on equity indexes are slightly lower than spot prices.



The exact term is not but I wanted to point out the prices can be off you earlier post that prices only depends on interest rate and spot price exclusively you advocated.

The prices are just off the spot price and interest rate calculation and it is just making it too complicate for regular individual investor.

I am now putting down all things making the price calculation so let see how easy for non pros can be to figure out the real price cost of indexes or stocks:
1. The current price (for future prices it is the future market regular investors not familiar with)
2. Risk-free interest rate
4. Yield (dividends)
5. Spreads in the underlying futures market (difference between buy and sell)
6. Additional spread added to 5 by the spread betting company (they need to earn something too)



Harchibald said:


> I used annual futures in my examples to ease the math but you are right, Delta only does quarterlys.
> 
> The spread plus lost interest on margin are the only costs for being long an index. These amount for the Eurostoxx 50 to about .5% per annum, which is even better than the .75% tracker funds you are investing in. However, I don't know whether pension funds can invest in FSB.



Does it make any difference in your calculation that you have no clue about the price too much in the future?
Is that risk?

What about other trackers or indexes?
Are they that cheap?

I would not say that just investing in 1 tracker like this will be proper diversification.

I do not think anybody could understand your calculation above.
I did not.
Did you include the dividend discrepancies in the prices of future positions for the next rolling periods as I believe that the price is not going to be lower all the time?

Maybe this tracker is very specific and we cannot use it for comparisons between real funds/ETF's and spread betting.



Harchibald said:


> BTW I think you are right, only a matter of time before caught in CGT net but presumably that won't be retrospective and in any case CGT is far superior to the 23% asymmetrical exit tax on the life fund alternative.



What is for your long term investing? How many years?
Did you try to follow this long term holding of indexes yourself?

Not sure what is that 23% but I assume if you are not speculator and short term investor then is it 23% or 20% on CGT is not a huge difference.
Why would anybody invest money on 1 or 2 years in QL trackers?

To be honest I have no price history from spread betting company, I have no proper futures charts, the public does not have details about how people are doing with them.

If it is so profitable why spread betting companies are not showing such great results and/or methods (e.g. long term investment) to the public so we can all gain from spread betting.

I think they have no clue themselves how to make money in the futures market otherwise they will be making it that way and not from spread fees and interest difference borrowing between long and short positions.
I am not saying they are not trying to make better results with no covering positions in futures market if they have strong opinion they do not need to.

I just hate all that sales crap around the investment industry about trading, market timing and so on.
If they are so smart pros will beat the simple stock market index over many years. But no they all think they can beat the market but for the price of us we are paying for their crap management (or spread) fees. 

Hey, I just want the cheapest possible portfolio of passive indexed funds (bonds included) to give me the equity risk premium over the long period of time.

In the US they have it. You build your diversified cheap market tracket portfolio for around 0.2% management fees in average.
I hope this time will come to Ireland sooner or later too and that people will go away from gambling, trading, frequent fund switching, market timing, spread betting and all that sales hype.


----------



## Duke of Marmalade

> I just hate all that sales crap around the investment industry about trading, market timing and so on.
> If they are so smart pros will beat the simple stock market index over many years. But no they all think they can beat the market but for the price of us we are paying for their crap management (or spread) fees.


 
Fully in agreement - *short term trading is gambling*, so in a sense the formal question of the topic is now settled, if we are talking about FSB as a trading vehicle, which I agree most people do.

I have raised a new question. Are long term FSB positions on equity indexes viable alternatives to tracker funds?

Of course the subject is complex. I have nearly convinced myself, but I have not convinced you, _Z_, and I certainly haven't convinced the _Boss_. But if we can all reach a consensus that what I outline below is correct then we can forget about the complexity. I hasten to assure you that I do not see this as a mass market proposition, but maybe for the likes of us sophisticates.

Here is my simple long term strategy:

1 unit of Eurostoxx 50 trading at 4029 - 4033
1 unit of FTSE 100 at 5873 - 5879
3 units of Nasdaq 100 at 1846 - 1849

That would be around 16K worth of a diversified portfolio, requiring about 1K to be deposited with Delta.

Charges (the above spreads are the only charges except loss of interest on margin) are around .1% to enter and .2% per annum subsequently.

Implicit 20% tax on dividends, otherwise no tax.

Of course, a downside is that you have to remember to rollover your portfolio every quarter and for maximum efficiency you have to strive to maintain the minimum margin.


----------



## Duke of Marmalade

> If it is so profitable why spread betting companies are not showing such great results and/or methods (e.g. long term investment) to the public so we can all gain from spread betting.


Z, I didn't say it was a sure way to make profits.  But it seems to be a very efefctive way of having a long term position in an index.

There are several reasons why the spread betting companies would not be promoting this as the best thing since sliced bread for the mass market.

- Impossible to explain
- Can't guarantee that the current conditions would always apply (that shouldn't really bother you or I, we can simply exit)
- If they started promoting these as long term investments rather than betting they would risk the favourable tax treatment
- Getting involved with the mass retail market would bring all the associated admin and compliance burdens and they could no more offer this service at .2% p.a. than a life company
- Anyway, they make their money from active traders, they ain't goin' to get rich with a lot of passive long term punters. In a sense the long term holder is leveraging off the very fine margins which are required by the traders to justify high activity.


----------



## Zoran

Harchibald said:


> Fully in agreement - *short term trading is gambling*, so in a sense the formal question of the topic is now settled, if we are talking about FSB as a trading vehicle, which I agree most people do.
> 
> I have raised a new question. Are long term FSB positions on equity indexes viable alternatives to tracker funds?



I fully agree.
OK, now we agreed what we should look for so let try to get the figures correct about spread betting and long term buy&hold.



Harchibald said:


> Here is my simple long term strategy:
> 
> 1 unit of Eurostoxx 50 trading at 4029 - 4033
> 1 unit of FTSE 100 at 5873 - 5879
> 3 units of Nasdaq 100 at 1846 - 1849
> 
> That would be around 16K worth of a diversified portfolio, requiring about 1K to be deposited with Delta.



We should try to form more proper portfolio so people will also have an idea what proper portfolio is.
We need to put realistic figures down, easy to understand for us and everybody else.
E.g. complexity problems are:
1. It is not the same doing rolling 4 times per year or 1 time as you know there is the compounding factor in that case
2. Some indexes in my case cannot be open without e15 per point meaning you need much more money to be non-leveraged
3. Problem of how much money you have at spread betting company not earning interest is variable due to that money needed to be:
deposit + Loss (e.g. when you place the position you can go 5% down and in need to have twice your deposit with spread betting company)
If you start first two years with to say -5% and -10% you are not going to earn a lot of interest as you will actually depleted money put into money market
4. We have no clue what will be the spread in the future or what was before now so we can base our calculation on the historical or future data



Harchibald said:


> Z, I didn't say it was a sure way to make profits.  But it seems to be a very efefctive way of having a long term position in an index.



Yes. That is something I tried to do but the cost did not work for me and not to say the volatility was awful as you needed to put more and more money into the account due to deposit + current paper loss (I hated this as deposit is just there why you need to cover the paper loss) needed to be covered. It all depends how you start your positions, in profit or loss, but you cannot count on this and we will not.



Harchibald said:


> There are several reasons why the spread betting companies would not be promoting this as the best thing since sliced bread for the mass market.


 
I agree that their interest (similar to regular stock brokers) is to have so many transactions as they are earning on it.
They like active traders so will do everything to spoil passive investing.

I did not have enough time to finally do some proper portfolio calculation with the spread betting company.


----------



## Zoran

Harchibald said:


> Charges (the above spreads are the only charges except loss of interest on margin) are around .1% to enter and .2% per annum subsequently.



I think nothing is this cheap.
The major cost for non leveraged positions is the difference between buy price of future and the current spot price.
That is the price that you need to beat to earn money from the stock market. 

E.g. buy price for EU Stocks 50 is 4031.5 and the current price is 2995 so you are paying 38.5 (future price difference + spread between buy and sell = 36.5 + 2) or around 1% per quoter making it in total at least 4% as not sure when dividends are coming into the play.

My calculations for many indexes are giving me the figure of around 3-7%.
I just spotted my favorite Vanguard Emerging Market ETF (VWO) I am keeping in my portfolio (10% of portfolio) with my spread betting company with around 7% yearly charges.
I am keeping such position as regular stock position in the US with 0.25% management fees per year and $10 broker charges (having the $ risk exposure too).


----------



## Duke of Marmalade

> We need to put realistic figures down, easy to understand for us and everybody else.
> E.g. complexity problems are:
> 1. It is not the same doing rolling 4 times per year or 1 time as you know there is the compounding factor in that case


 
.1% has a compounding effect over 4 quarters of 6 in a million Compounding only comes significant with much larger percentage changes.  Besides when a life company or other fund manager says it is charging 1% per annum it usually means 1/12% per month.



> 2. Some indexes in my case cannot be open without e15 per point meaning you need much more money to be non-leveraged


 
Delta trades at 1 euro per point.



> 3. Problem of how much money you have at spread betting company not earning interest is variable due to that money needed to be:
> deposit + Loss (e.g. when you place the position you can go 5% down and in need to have twice your deposit with spread betting company)
> If you start first two years with to say -5% and -10% you are not going to earn a lot of interest as you will actually depleted money put into money market


If you are losing money, the extra deposit is only until the next roll-over, at which time you roll-over at lesser levels and have less margin. 

But yes, managing margin is a variable and a pain, but the negative effect will not be much different from .2% per annum. 


> 4. We have no clue what will be the spread in the future or what was before now so we can base our calculation on the historical or future data


 
True, but why start off in a QL Freeway for example that is charging twice as much and with its assymetrical exit tax? You can always switch later in the unlikely event that spreads in the futures market significantly widen.



> I think nothing is this cheap. [.2% per annum]
> The major cost for non leveraged positions is the difference between buy price of future and the current spot price.
> That is the price that you need to beat to earn money from the stock market.


 
These are the charges - there is also the cost of borrowing, which for Euro is 4% per annum. Presuming you have the "leverage" on deposit somewhere earning 4% or even more this cancels out.


----------



## Zoran

Harchibald said:


> .1% has a compounding effect over 4 quarters of 6 in a million Compounding only comes significant with much larger percentage changes.
> But yes, managing margin is a variable and a pain, but the negative effect will not be much different from .2% per annum.
> These are the charges - there is also the cost of borrowing, which for Euro is 4% per annum. Presuming you have the "leverage" on deposit somewhere earning 4% or even more this cancels out.



I did not understand where did you find .1% and .2%.
As I said charges are around 3-7% per year for me. The similar is in Pryor's book when he compares spread betting with long term stock holding.
Just he did not elaborate all cases when the stock is going down, compounding and so on.

We need to see your formula for these tiny costs you are showing as it is looking to me you missed the difference in the price between the future price and the spot price.

Also, the money market return is not fixed over the years.


----------



## Duke of Marmalade

_Z_, you are including the cost of borrowing, but that is not a charge, it can be cancelled out and even better in today's conditions by depositing the leverage. The spread plus the interest on margin are the *only* charges.


----------



## z106

Harchibald said:


> _Z_, you are including the cost of borrowing, but that is not a charge, it can be cancelled out and even better in today's conditions by depositing the leverage. The spread plus the interest on margin are the *only* charges.


 
That's an interesting way of looking at it alright harchibald.

So basically - if someone wants to enter an unleveraged position then they should not buy shares from a broker so ya as they will avoid the tax and any (higher?) fees?
Am i understanding you correctly?


----------



## Duke of Marmalade

qwertyuiop said:


> So basically - if someone wants to enter an unleveraged position then they should not buy shares from a broker so ya as they will avoid the tax and any (higher?) fees?
> Am i understanding you correctly?


 
Yep, _keyboard_. I find the leverage thing a bit of a red herring. Say I do buy (I haven't yet) 10 units of Eurostoxx 50 March '08, I will see myself as having 40K worth of stock, on which I owe the money. But I happen to have a wee bit more than that on deposit with the Irish Nationwide earning 5.1%, so in aggregate no leverage. Normally back to back deposits/loans involve some financial intermediation slippage but in today's conditions that actually is a positive, though after DIRT we're back to near neutrality.

The spread is 1 per mil, that covers wholesale spread, Delta spread and borrowing spread. And it appears I can roll that over quarter to quarter at 0.5 per mil.

An even bigger tax saving than CGT is that divies are only taxed (implicitly) at the wholesale market rate (Delta suggests 20% as typical) and not at the 43% for an individual.

I am going to test it on 1 unit just in case I am missing some slippage on the roll-over, its the sort of question you can't be absolutely sure of the answer until you put your fingers in the wound.


----------



## Duke of Marmalade

coola said:


> www.igindex.co.uk is by far and away the best. they have everything on there and tight spreads too.


 
I signed up to this today.  It is absolutely the business.  Spreads are half those on Delta which in themselves seemed too good to be true.  *There is no other way to invest in the stockmarket.*


----------



## z106

Harchibald said:


> I signed up to this today. It is absolutely the business. Spreads are half those on Delta which in themselves seemed too good to be true. *There is no other way to invest in the stockmarket.*


 
I tried tos set up an account but must send over some docs.

Have u actually signed up completely?

DO u have to lodge money in your account before you can view their platform/charts/prices etc.?

Also - out of curiosity,one problem i have with worldspreads is that many (not all) of their charts only go back a few weeks.

Did delta index have the same problem?

DO igindex have more conclusive charts?


----------



## Duke of Marmalade

qwertyuiop said:


> Have u actually signed up completely?
> 
> DO u have to lodge money in your account before you can view their platform/charts/prices etc.?
> 
> Also - out of curiosity,one problem i have with worldspreads is that many (not all) of their charts only go back a few weeks.
> 
> Did delta index have the same problem?
> 
> DO igindex have more conclusive charts?


Signed up completely in a few hours. Faxed copy of passport and utility bill.  Made a mess of faxing otherwise could have all been done within an hour.

No money lodged yet, complete access to their site.

Their charts are the exact same as Deltas, but they take for ever to load, maybe a fault at my end.

Not sure about depth of Deltas charts.


----------



## Zoran

Harchibald said:


> _Z_, you are including the cost of borrowing, but that is not a charge, it can be cancelled out and even better in today's conditions by depositing the leverage. The spread plus the interest on margin are the *only* charges.



OK, so you are actually removing the cost due to the money market profit on the rest of the money.

Would you show me the long term formula for this?

I am just saying that from the short term perspective (6-12) months that looks profitable. The problem is you have no clue what will happen with the market in 6-12 months so you are taking the risk.
Long term means more then 10 years otherwise it is market timing.
If you need money in 1 or 2 years then why risk with equities and not go with just money or bond type of market?

Of course we all want to be wealthy fast but that is not possible with efficient markets 
If this is something that is working or will work for a long time believe me it will already be exploited so the market will price it already so it will not work in the near future (even if you believe it should work now).

So, go and hurry if you think it is working for you now


----------



## Zoran

coola said:


> The stock market is a gamble, pure and simple- whatever way you play it is up to you. a person that says he is investing in a company is talking rubbish as the average person that gives money to a broker does not know anything about the company they are "investing in". they are just "betting" that the price of the stock goes up.



It is not if you own the market through the passive (cheap) indexed managed funds/ETF's.
You need to own it for at least 10-15 years to get the equity risk premium (to profit from the stock market) for a sure.



coola said:


> what way you chose to play it is your choice but i prefer to spread bet as i dont like paying commision to some guy in a brokers office that hasnt a clue what hes talking about and paying CGT on winnings.



You shoul dnot be paying CGT if your money is invested through the pension as it should be for majority of your money.
Even money outside your pension you are saving for a long time should be long term buy&hold so no CGT except at the end (apart from rebalancing the positions to keep the percentages between the funds the same as when you started)



coola said:


> Most of the "experts" talk rubbish - pure and simple. at start of last year they predicted another great year for the irish stock market, what happened, it lost 20% and was one of the worst performing indices in the world. people who say they are technical analysts are just guessing.dont be fooled by them



I agree that it is sale hype, CNBC, Bloomberg, brokers, banks, active money managers, spread betting brokers and others.
They are all earning due to people thinking they can beat the market.
You can hardly hear anything about passively managed indexed funds/ETF's anywhere.
Do you know what is that?

Irish Market is less then 1% of the world market and you need to be full to have more then 1% of your money invested in the Irish stock market.
You need nice portfolio of diversified passively managed funds (or ETF's).


----------



## Zoran

Harchibald said:


> I signed up to this today.  It is absolutely the business.  Spreads are half those on Delta which in themselves seemed too good to be true.  *There is no other way to invest in the stockmarket.*



So, how you are going to beat my e1000 I put into the pension.
You have either e800 or e550 after tax.

So, how are you going to beat my e1000.
Tell me such investment.
I know the answer, it is spread betting 

OK, now.
I have e1000 after tax 
and I invest into world marker index.
You do the same with the spread betting.
You are thinking you are better.
So what happens if the market next two years is -10% and -10% and then goes up after it?
What will happen with your money earning you the interest? Is it going to be the same or you need 3x your deposit to be with the spread betting company.

OK, now the better part is around volatility. You can be -10% at the end of the year but the biggest drop may be -30% like in today's market so you need to have a half of your money with the spread betting company and a half of the money in the money market.

The other fact: the money market is negatively correlated to the stock market? Does this mean that your calculation can change over time?
E.g. stock market starts growing, then futures prices starts growing making your spread betting cost higher while money market starts giving you less.
Is that the risk?


----------



## Zoran

qwertyuiop said:


> DO igindex have more conclusive charts?



They do not for the futures. The futures charts are just showing the period that future covers (e.g. 3 or 6 months).

You have no clue what was the historical price so I cannot for example prove to Harchibald that this strategy did not work in the past.

Also, do not forget that spread betting is too new to have any long history.
What I know from the history is that spread betting costs before were very high and money market (Irish one) was giving you 2-3% so was not good in the past.
Was it going to be in the future?
Do not think so as the market is very efficient.


----------



## Duke of Marmalade

_Z_, nobody is arguing that FSB is the sure way to riches.

It is the basic theme of AAM that passive investment is superior to active and that charges are the main differentiator. Hence QL Freeway is the darling of AAM. 

I am sympathetic to that view but my case here is that FSB is cheaper and more tax efficient than even QL. Do you agree?


----------



## Zoran

Harchibald said:


> _Z_, nobody is arguing that FSB is the sure way to riches.
> 
> It is the basic theme of AAM that passive investment is superior to active and that charges are the main differentiator. Hence QL Freeway is the darling of AAM.
> 
> I am sympathetic to that view but my case here is that FSB is cheaper and more tax efficient than even QL. Do you agree?



I agree that QL freeway funds are passively managed but their charges are like active management funds.

Huh, you are putting me in the bad position to choose between two brokers who are charging a lot 

I assume that is one of the reasons why spread betting is so popular too.
I hope that spread betting if nothing good will bring more competition to these greedy brokers (e.g. Davy and others charging 0.75% per transaction and similar so you cannot buy cheaply even cheap ETF's).

Once again they are just making (or trying to make) investing game on the short term negative sum game.
I hope some big and good investment company will arrive to Ireland and wipe them all.


----------



## Zoran

This is an easy link to read some facts about investing and read what some big names as Buffet and others has to say for individual investors:

http://www.ifa.com/12steps/


----------



## Duke of Marmalade

Zoran said:


> So what happens if the market next two years is -10% and -10% and then goes up after it?
> What will happen with your money earning you the interest? Is it going to be the same or you need 3x your deposit to be with the spread betting company.


 
_Z_, you've got that wrong.

The cash balance sheet at any time is as follows:

Cash in Bank = Cash owed on Futures - Margin

The "dead" money is the Margin. Losses increase Margin until the next roll-over at which time you settle and the Margin is reset at the normal level, and the above cash balance sheet is reduced.

The point is you only lose money on losses until the next roll-over, because at that roll-over the borrowings needed to refinace the futures has fallen.


----------



## Zoran

Harchibald said:


> _Z_, you've got that wrong.
> 
> The cash balance sheet at any time is as follows:
> 
> Cash in Bank = Cash owed on Futures - Margin
> 
> The "dead" money is the Margin. Losses increase Margin until the next roll-over at which time you settle and the Margin is reset at the normal level, and the above cash balance sheet is reduced.
> 
> The point is you only lose money on losses until the next roll-over, because at that roll-over the borrowings needed to refinace the futures has fallen.



If you split the investment period in 4, 16 or 100 pieces where you need to settle it in real money without the ability to choose is it good or bad moment to settle it is not the same as doing nothing and having paper losses.

Also relying that the money market will cover your future premium you need to pay is not looking smart for me.

Did you try your method yet or this is just theoretical (sales) story?


----------



## Duke of Marmalade

Zoran said:


> Did you try your method yet or this is just theoretical (sales) story?


 
Z, will you drop the conspiracy angle please. I have not been given any sales pitch and I certainly am not doing any pitching myself.

I am only new to FSB thanks to this thread. It looks very very good to me, esp. IG, but I am not deaf to your constant mantra that there's no easy money for small guys like me.

BTW my only dabble so far was a small punt on Irish Life at 9.74 now trading 2 euro higher Or maybe that is just a sales trick by Delta to lure me in.


----------



## Zoran

Harchibald said:


> Z, will you drop the conspiracy angle please. I have not been given any sales pitch and I certainly am not doing any pitching myself.
> 
> I am only new to FSB thanks to this thread. It looks very very good to me, esp. IG, but I am not deaf to your constant mantra that there's no easy money for small guys like me.
> 
> BTW my only dabble so far was a small punt on Irish Life at 9.74 now trading 2 euro higher Or maybe that is just a sales trick by Delta to lure me in.



Sorry Harchibald. I know both of us are trying to do something meaningful.

I think we should agree that neither of us is with good knowledge of futures market so we are going around.
It is for a sure very complex and believe me it is looking great now as the market is in tumble and futures are a bit lower then usually.
Even I read a couple of books I did not invest in futures market directly due to the knowledge and money constraints in such market.
Spread betting account you got in 1 day so be careful 

If we have the historical data of futures market (you need to pay for such) and money market for Ireland then we will be able to calculate things.

I am going to ask some people around who might help with this question.


----------



## Duke of Marmalade

Zoran said:


> This is less likely as you need to beat efficient market and small percentages of pros who are really making money.


_Z_, Nick Leeson, John Rusnek, Merton Scholes, Jerome Kerviel - are you sure the pros/Nobel Prize winners have an edge?

I used to wonder how someone a wet week out of university could earn massive bonuses as a trader. I had a few ideas but as shown below I am not so sure they are still valid:

1. They had the economies of scale of trading on behalf of huge institutions. 

Seems to me that with FSB I have very similar costings even maybe an edge as my deals will never be refused whereas large deals might have to compromise.

2. Access to sophisticated technical analysis. 

The charting tools that are available on FSB seem very sophisticated to me.

3. Access to Nobel Prize winners.

Not convinced this is a huge edge.

4. Ability to balance a phone on each shoulder.

With the internet this is now a redundant skill.

5. Nerve to wear red braces.

This is what put me off going into trading myself. But with FSB you can operate from the privacy of your own home, in polka dotted underpants if you chose.


----------



## Zoran

Harchibald said:


> _Z_, Nick Leeson, John Rusnek, Merton Scholes, Jerome Kerviel - are you sure the pros/Nobel Prize winners have an edge?
> 
> I said a few of them and did not say for a long term
> Pros are fighting between themselves. Around 80% of market is traded by pros. Every year different pros (or funds) may win but not consistently.
> If you have 10000 fund managers and each of them are throwing the coin (as somebody will beat the market index and somebody will loose) then 50% will beat the market this year. Next year it is 25% and after 10 years you will have 10 find managers (pros) who will beat the market after 10 years.
> Is this luck or knowledge is hard to judge but the history shows that it is more luck as there are so many examples these Nobel and other smartest guys lost money in 11 year or whatever year
> 
> 
> 
> Harchibald said:
> 
> 
> 
> I used to wonder how someone a wet week out of university could earn massive bonuses as a trader.
> 
> 
> 
> 
> They are all playing with our money. It is easy to be fund manager or trader when you are trading with somebody else's money for crazy management fees. I think we do not have enough jails for these guys.
> 
> 
> 
> Harchibald said:
> 
> 
> 
> I had a few ideas but as shown below I am not so sure they are still valid:
> 
> 1. They had the economies of scale of trading on behalf of huge institutions.
> 
> Seems to me that with FSB I have very similar costings even maybe an edge as my deals will never be refused whereas large deals might have to compromise.
> 
> Click to expand...
> 
> 
> They are brokers (or bookies) so they put the bet in the middle so they earn money from the spread and from the interest of borrowing money.
> It is hard for them to loose if they are not taking the bet themselves (e.g. not hedging or having crap prices)
> 
> 
> 
> Harchibald said:
> 
> 
> 
> 2. Access to sophisticated technical analysis.
> 
> The charting tools that are available on FSB seem very sophisticated to me.
> 
> Click to expand...
> 
> 
> I believe they will start giving 10% back of losses just to have you on board  For them it is the winning game as for all brokers. Once they start trading themselves they may go out of the game.
> 
> 
> 
> Harchibald said:
> 
> 
> 
> 3. Access to Nobel Prize winners.
> 
> Not convinced this is a huge edge.
> 
> Click to expand...
> 
> 
> It is better edge then what you and me are having.
> We have almost nothing. Struggling to backtest our buy&hold theory based on the futures. They can test such thing overnight.
> If somebody is reading our posts they may be laughing.
> The problem with them is they are fighting themselves, big pros with all that massive computer and intelectual power.
> For me this is no win game.
> But I will be better then majority of this active managers as I will be passive and invested in long term buy&hold that will give me the profit as the index I am tracking.
> 
> 
> 
> Harchibald said:
> 
> 
> 
> 4. Ability to balance a phone on each shoulder.
> 
> With the internet this is now a redundant skill.
> 
> Click to expand...
> 
> 
> Believe me, still if you have 1M to buy something you will call the broker as he can buy you things much cheaper.
> I have seen on the brokerage SW recently somebody bought 200M of City stocks in around 10 seconds filled.
> 
> 
> 
> Harchibald said:
> 
> 
> 
> 5. Nerve to wear red braces.
> 
> This is what put me off going into trading myself. But with FSB you can operate from the privacy of your own home, in polka dotted underpants if you chose.
> 
> Click to expand...
> 
> 
> Internet is like the new member of your house. You spend your money with 1 click of mouse (e.g. buying book).
> Or even gamble the money so easy (investing of course).
Click to expand...


----------



## Duke of Marmalade

_Z_, you obviously know your stuff. That spreadsheet was very comprehensive. 

I prefer to stick to my simple proposition which is that FSB seems a more tax effective and more cost effective way to have a long term passive holding in Eurostoxx 50 than QL Freeway. 

I don't want to confuse the matter by considering whether that particular index is a good investment. It may be that there are other ETF strategies which backtest better, but are they better in terms of taxes and charges? The spreadsheet doesn't tell me this.

In fact, backtesting is really not relevant to determining charges and taxes. I accept that with FSB one is relying on the current position prevailing in the future, but if it is better now why start off on the inferior conventional model? You can always switch later if conditions deteriorate and start to favour the Life Fund.


----------



## Zoran

Harchibald said:


> I prefer to stick to my simple proposition which is that FSB seems a more tax effective and more cost effective way to have a long term passive holding in Eurostoxx 50 than QL Freeway.
> 
> In fact, backtesting is really not relevant to determining charges and taxes. I accept that with FSB one is relying on the current position prevailing in the future, but if it is better now why start off on the inferior conventional model? You can always switch later if conditions deteriorate and start to favour the Life Fund.



Do you know why is Eurostoxx 50 future that cheap at the moment?
Did you look that top 10 dividends companies in such index are giving from  3.4 to 6.1% dividend.

I do not think you did your mathematics properly.
I am invested in Euro passive index with IL for 0.75% in my pension and that is cheaper then 1% of Quinn. No exit and entry charges neither.
Also no CGT as it is pension and I have immediate gain of 80% or more as I am not paying the higher tax to the government.

I agreed already that QL is crazy expensive for passive funds. The same is for others as I found 0.75% to be the cheapest.
Also have no clue are they good as Vanguard passive funds.

My last two sentences are out of the context but it is hard for me to see the long term buy&hold huge investments going outside the pension due to CGT problems (except if you borrow money against your mortgage or it is just your emergency/scholarship fund)

If I have big money outside pension (like more then 100k) I will be insane not to put that money with Vanguard Ireland and pay 0.1% per year in charges and own the market passively.

Give me the formula with dividends calculation included for Eurostoxx 50.
Show me mathematically that rolling something 2 or 4 times per year is not going to deteriorate the result.
It is easy to think in the head like: oh it is cheaper and looking cheaper.
I will believe you when you present me some mathematics, real one.

Even you are correct I am not seeing this possibility last long enough to be good long term buy&hold candidate as big money will see such inefficiencies and try to use it and of course that will lead to well known efficient market.

Also CGT is not a big problem for long term buy&hold as you should not be selling except when doing rebalancing to keep your percentages tight.
For that you have the means of selling one passive fund/ETF and buying other one so keeping your CGT payments at e0 (easier with ETF's).

If you are going to be in Eurostoxx 50 or anything else invested just 1 year then you are the market timer and I will not consider that investing for the individual investor.


----------



## Duke of Marmalade

Z said:
			
		

> Give me the formula with dividends calculation included for Eurostoxx 50.
> Show me mathematically that rolling something 2 or 4 times per year is not going to deteriorate the result.
> It is easy to think in the head like: oh it is cheaper and looking cheaper.
> I will believe you when you present me some mathematics, real one.


 
_Z_, the math is not complicated. *The charge is the spread, nothing else to it. *

The futures market is umbilically linked to the spot market by a formula involving dividends and interest. You don't need to strain to understand that formula as you can be sure that if the futures market was not priced at fair value relative to the spot market, the pros and Nobel Prize winners would bite the arb of the FSB provider.



			
				Z said:
			
		

> If I have big money outside pension (like more then 100k) I will be insane not to put that money with Vanguard Ireland and pay *0.1%* per year in charges and own the market passively.


 
Sure about those charges?


----------



## Zoran

Harchibald said:


> _Z_, the math is not complicated. *The charge is the spread, nothing else to it. *
> 
> The futures market is umbilically linked to the spot market by a formula involving dividends and interest. You don't need to strain to understand that formula as you can be sure that if the futures market was not priced at fair value relative to the spot market, the pros and Nobel Prize winners would bite the arb of the FSB provider.
> 
> Sure about those charges?



I need to agree that if it is not priced properly somebody may arbitrage it.
The only thing is that money market or bond market you invest your money needs to beat that "cost-of-carry".

I see your point in comparing it to QL as their charges are too much.

Vanguard charges for Europe is more then in the US and they are from 0.2% to 0.5% for various funds.

While looking Vanguard Europe I have seen the first time this kind of fund based on futures and 2-years bond investment:

[broken link removed]

You can clearly see they are doing the similar thing as we want to do 

How closely we can use such strategy and have the nice cost through the spread betting companies I do not know.

You should go for it Harchibald and post us back after a few rollings.
We can compare your results with the index you have chosen.
I am putting my money mostly through the pension so not sure will go that way with spread betting.

Best of luck with it.


----------



## Duke of Marmalade

_Z_, great to see that we are closing the gap between us. 

FSB is not suitable for pension funds as you pay the cum/ex slippage on divies which Delta says is about 20%. If you have ETFs with .75% all in charges, then for a pension fund that is better than FSB even if the latter was allowed.

A summary thought to me is that spreads are very very small on IG Eurostoxx 50 - only .05%. But if you actively trade, say, 100% turnover every week that amounts to 2.5% per annum. That's where IG et al make their money. Buy to Holds are piggy backing off these remarkably small spreads and probably are a complete pain in the neck to the IGs of this world.


----------



## Zoran

Harchibald said:


> A summary thought to me is that spreads are very very small on IG Eurostoxx 50 - only .05%. But if you actively trade, say, 100% turnover every week that amounts to 2.5% per annum. That's where IG et al make their money. Buy to Holds are piggy backing off these remarkably small spreads and probably are a complete pain in the neck to the IGs of this world.



OK. So let see what we have on IG.

MAR-08 sell/buy is 3818.5 - 3820.5 - so the spread is around 0.05% as you said.

The spot price is around 3765.5 so you are paying 55 points between buy MAR-08 and spot price.
The number of days till MAR-08 future is finished and needs to roll over is around 53 days If I calculated it correctly.

When you calculate what interest they are charging you per year:

(3820.5 - 3765.5) * 365 / (3765.5 *  53) ~= 7%

So for me your money market (bond, AIB or whatever else) needs to be better then 7%.
This is in line with Pryor's book too as spread betting company interest between longs (7%) and shorts (4%) are around 3% making them easy to make money in the interest spread.

What is wrong with my calculation?
If nothing how are you going to beat 7% with the rest of the money?


----------



## Duke of Marmalade

_Z_, you are missing the arb principle.

If your calcs are correct and I doubt it for there should be no arbs, the Nobel Prize winners would sell the future and buy the spot. That means borrowing at 4% and earning 7%, sure fire profits.

The fact is that the futures market is absolutely the same as the spot market, the only difference being the interest rate and dividends. 

The interest rate has to be the the mid wholesale rate as one can go short or long, anything different leads to an interest rate arb.

BTW if you do rolling dailys then the interest charged is very explicit  - 3% over ECB on Delta, 2.5% on IG.  This is similar to the interest spreads you quote.  But with futures the interest spread is included in the dealing spread.  For IG Eurostoxx 50 that's .05% *ALL IN.*


----------



## z106

Zoran said:


> OK. So let see what we have on IG.
> 
> MAR-08 sell/buy is 3818.5 - 3820.5 - so the spread is around 0.05% as you said.
> 
> The spot price is around 3765.5 so you are paying 55 points between buy MAR-08 and spot price.
> The number of days till MAR-08 future is finished and needs to roll over is around 53 days If I calculated it correctly.
> 
> When you calculate what interest they are charging you per year:
> 
> (3820.5 - 3765.5) * 365 / (3765.5 * 53) ~= 7%
> 
> 
> What is wrong with my calculation?
> If nothing how are you going to beat 7% with the rest of the money?


 
Hang on Zoran - I hink you made a mistake there.

Assuming your prices are correct (i haven't checked)

Future price = 3820
Spot price = 3765.

=> the difference is 55 points.

Or put another way,by the end of march (2 months time) it has to gain 55 points to just break even.
So - a 55 point gain on 3765 = 1.4608% gain (lets just say 1.5%)

Multiply this for 6 for 6 2-month period in the yaer = 9% .

Hm...that's interesting...i am surprised it is that high.

I have seen other products that are far cheaper.
E.g. Gold on worldspreads for the rolling spot price right now is 929.5
The june future is 939-940.

i.e. 11/940 * 100 = 1.17% for 5 months
=> for 12 months would be around 1.17 * 2.4 = 2.8%.

So -what's that about?
Hpow come such a discrepancy in both products?


----------



## z106

Harchibald said:


> _Z_, you are missing the arb principle.
> 
> If your calcs are correct and I doubt it for there should be no arbs, the Nobel Prize winners would sell the future and buy the spot. That means borrowing at 4% and earning 7%, sure fire profits.
> 
> The fact is that the futures market is absolutely the same as the spot market, the only difference being the interest rate and dividends.
> 
> The interest rate has to be the the mid wholesale rate as one can go short or long, anything different leads to an interest rate arb.


 
Harchi....Zorans calculations are pretty much correct.(assuming the original spot and future prices supplied by him are correct of course)

Can you give a working example of this arb?

Beause if the borrowing is at 4% like you say - and i calculate the earning is 9% - then lets actually work through this arb that you say exists.

Can you give an actual example by going through the working mechanisms using the figures above.

I'm not convinced this arb exists if the original figures zoran supplied are correct.

Just to clarify - an arb means a situation where  a discrepancy in prices occurs whereby you can't lose by buying at one price someplece and selling at ahigher someplace else at the same time ya?
I'm not knowledgable enough really to ge getting in on this about arbs - but i am curious.
What i can say is that my calculation above is correct though if that's any good to the situation.


----------



## Duke of Marmalade

_Keyboard_, _Z_, was including half the spread in that calc, and he also said the spot was "about" xxx, not precise enough.

You have included the full spread in your calc.

Let us try and isolate the pure interest rate cost - which is mid to mid.

The big boys can operate at practically no spread and it is they who would exploit any arbs. So let us say the Futures is trading 7% p.a. higher than Spot.

The arbers would sell say 1000 Futures (on credit they don't need margin, or if they do they earn interest on it).

Simultaneously they would borrow enough at 4% p.a. to buy 1000 Spot.

When it comes to settling the Futures, they have the Spots already bought and it doesn't matter one jot what their then price is, they simply pick up the original Spot cost plus 7% per annum and pay back the original loan at 4% per annum, pocketing the difference.

All very theoretical but because short and long positions are allowed the theory actually dictates the relationship, it doesn't rely on arbers actually making it happen.

Gold is slightly different since it is a quasi commodity and there can be contango/backwardation due to supply and demand factors.


----------



## Zoran

Harchibald said:


> _Keyboard_, _Z_, was including half the spread in that calc, and he also said the spot was "about" xxx, not precise enough.
> 
> You have included the full spread in your calc.



My calculation was very precise.
I just went to IG Index spread betting that I have an account with.
I also get the spot price from the yahoo finance:
http://uk.finance.yahoo.com/q/bc?s=^STOXX50E

You can see exact figures in my formula. 
You can do it yourself for today's prices.

After MAR-08 you need to roll it to JUN-08 and it will cost you 54 instead of 55 as you will pay just the half the spread.
You will still need to pay the difference between MAR-08 when it expires (that will be close to the spot price) and JUN-08 premium price.


----------



## Duke of Marmalade

Look, this is very simple. The only charge is the spread. If you think the carry is too high then short the future - you are earning that rate on your reverse leverage. 

Future (ex spread) = Spot(ex spread) + Wholesale mid Interest rate - Dividends

End of story, if you see anything different, arb it.


----------



## Zoran

Harchibald said:


> Look, this is very simple. The only charge is the spread. If you think the carry is too high then short the future - you are earning that rate on your reverse leverage.
> 
> Future (ex spread) = Spot(ex spread) + Wholesale mid Interest rate - Dividends
> 
> End of story, if you see anything different, arb it.



So, your long term buy&hold strategy is to do arb?
Or to go short?

I just do not get it what you are talking here.
We are calculating the price of being long and I showed you the mathematics.
Show me the mathematics that your pick Euro 50 is not with the premium of 7% per year.

You need to beat 7% in money market and that is not possible so the only good long term strategy is to have portfolio of passive indexed funds/ETF's.

I do not care about arb at all.
Please, let talk about long term buy&hold investing as anything else is trading and speculating.

Please, let just discuss the price of long as this is what we wanted to know.


----------



## Duke of Marmalade

_Z_, I am obviously a very very bad pedagog.

I have already explained that your calculation included half the spread. It could also contain a miniscule timing difference between spot and futures.

I have just repeated the exercise - March futures trading at 3796/3798, Spot (unfortunately from another source, IG don't do spot, and up to 15 mins delay) was 3777. Do the math again - that's 3.2% per annum, but I know that is slightly wrong as *the exact answer has to be 4%*.  (also divies have to be factored in)  Unless you are using market makers at the exact same moment of time you will never get enough accuracy here - a sort of uncertainty principle of the markets, but be sure that the same market maker will calculate its futures from its spot using the precise fair value formula.

I will be doing no arbing but I can rely on the existence of arbers to ensure the interest rate will always be the mid wholesale rate.

I will try for the very last time.

Imagine shorts are exactly balanced by longs. I hope you will agree that the FSB company definitely only makes the spread in this situation. But you are arguing that the longs are paying an extra 3% per annum penalty. If so that that must be going to the shorts not to the FSB company.

Of course, the FSB company might recognise that it has more longs than shorts and up the price. But you see the FSB is quoting directly from the real futures market and such price fixing would never survive because of the arbers.

IG and Delta both state quite categorically that their only charge is the spread. IG in particular is regulated by the FSA, so _Z_ I suggest you make your "complaint" to the FSA.


----------



## Zoran

Harchibald said:


> I have already explained that your calculation included half the spread. It could also contain a miniscule timing difference between spot and futures.
> 
> I have just repeated the exercise - March futures trading at 3796/3798, Spot (unfortunately from another source, IG don't do spot, and up to 15 mins delay) was 3777. Do the math again - that's 3.2% per annum, but I know that is slightly wrong as *the exact answer has to be 4%*.



Future market prices are reacting faster then regular spot prices on the stock market. Some strategies are even exploiting such fact.
Spread betting is probably following closely futures market.
Futures market is not following closely regular market as we proved it.

I just read the prices again

IG Index MAR-08 - 3907.5 - 3909.5 
spot - 3867 

Difference = (3909.5 - 3867) *365 / 3867 / 48 ~= 8.3%

You had less then 4 percent earlier and I had 7%.

I will take another one market that is both open at the moment. S&P 500, the most liquid of all indexes:

spot price - 1390
IG Index MAR-08 - 1392 - 1393
            JUN-08  - 1394 - 1395

Difference (MAR) = (1393 - 1390) * 365 / 1390 / 48 ~= 1.7%
Difference (JUN) = (1395 - 1390) * 365 / 1390 / 139 ~= 1%

Pretty good, is not it?
Does it depend on supply/demand (current participants feeling of the market) or it is just pure mathematical equation as you say.

It is all just too complicate to me.
I am giving up Harchibald.
For me time is very important thing and resource.

I decided to not spend so much time on investing anymore.
I bought in both pension and outside pension account passive indexed funds or ETF's and I am giving up any active trading and stock picking. 

Best of luck for all of you out there.
Just think that there are more important and nice things in life then just spending time on investing.
Also that investing needs to be long term as it should give you decent return over 20 or 30 years probably. If you are good 100% a couple of years means nothing as with such risk you may be next year 50% down easy or even loose all your money.

I found my way and tried to tell others so bye.


----------



## Duke of Marmalade

Bye, Z, and good nite, enjoyed the banter.


----------



## Zoran

Harchibald said:


> Bye, Z, and good nite, enjoyed the banter.



Bye H. I enjoyed it too.

I wanted to contribute due to the idea that some thoughts may help somebody. It is very hard to talk against the Wall Street, TV and all that sales hype (here you have people that still believe them). 
Do not forget what is good for these blood suckers is not good for you at all.


----------



## vortex

*Re: The difference between Investing and Gambling*



Brendan said:


> Hi Harchibald
> 
> 
> Market return = Punters' gains (losses) + provider's gross profits
> 
> What I don't get is who provides the market return?
> 
> Punters' gains + provider's gross profits must be funded by someone unless they are buying the market themselves?
> 
> Brendan


Each spread bet is matched with purchasing a CFD contract. So the spreadbetter company is not acting as a bookmaker but as a wholesaler. Am I right QWERTY?
I agree with QWERTY. Its no more gambling than buying a CFD, which is no more gambling than buying the share itself. As for the logic that when one gambler wins another loses, the same can be said for share purchase. A seller sells a share to a buyer at 100 cents which one month later is worth 110 cents. The seller has lost a potential profit of 10 cent per share the buyer has gained that 10 cent profit.


----------



## ccraig

Does anyone know how spreadbetting companies hedge against their clients exposure when in some cases the difference in the share/currency value is 1-2 pips

i,e
USD today midmarket  1.56101
USD     BID: 1.5705     OFFER: 1.5707

You jump in and buy at 1.5707 in the belief the USD will weaken placing 10euro per pip

Are the spreadbetters simply making their margin on the difference between the midmarket and the rate they offer on 'bid' or offer'? If so that means they have to fork up money on every trade.

Do they merely follow you into the trade and take their margin when you hit margin call or want to get out of the trade?


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## Duke of Marmalade

Don't fully understand the question.  In your example if the FSB is quoting 15705/15707 then they in turn are being quoted, say, 15705.5/15706.5 and they will immediately hedge at a small profit no matter how you jump.  Is your question prompted by the fact that the FSB would need to be dealing in fractions of a pip?  Conceptually no problem with that.


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## spreadbet

Interesting thread, I am new here.

I tend to agree with Zoran's views and I think that spread betting including financial spread betting is gambling. I also think that any short term day trading is also gambling. Both depend on getting the timing of the market right and as most people cannot see the future I suspect that most get the timing wrong and lose. This leaves aside dealling costs for day trading and margins for spread betting.

Spread betting is much worse as it is leveraged, as Zoran has said you only need a small drop in the underlying financial for you to lose a lot more than your stake. Unless you are willing to risk your whole live savings without stop losses you will need a stop loss. In most instances market volatility will cut you out at a loss - but at this time your loss is realised. Do this many times and the volatility of the markets is likely to break your bank.

Long term financial investing is preferable in my view, but still a risk and in some cases may lose. Returns are smaller, but the chances of obtaining a return on your investment is greater even if it will not make you a millionaire so easily!. 

I am willing to bet anyone on here that if we could check the accounts of spreadbetting companies that at least 75% of their customers lose money over time. Anyone want to make a market on this?

By the way, buying shares gives you an asset, dividend income, and your loss is limited to the value of the share. Holding long term it is the DIVIDEND income that makes most of the return on a share investment. Spread betting does not offer you dividends on your spread bet and so long term cannot compare with holding shares directly.

Spread betting = gambling. High risk for potential high reward, high risk for potential big losses. Take your chances but at least be informed!

Cheers


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## zxcvbnm

spreadbet said:


> Interesting thread, I am new here.
> 
> I tend to agree with Zoran's views and I think that spread betting including financial spread betting is gambling. I also think that any short term day trading is also gambling. Both depend on getting the timing of the market right and as most people cannot see the future I suspect that most get the timing wrong and lose. This leaves aside dealling costs for day trading and margins for spread betting.
> 
> Spread betting is much worse as it is leveraged, as Zoran has said you only need a small drop in the underlying financial for you to lose a lot more than your stake. Unless you are willing to risk your whole live savings without stop losses you will need a stop loss. In most instances market volatility will cut you out at a loss - but at this time your loss is realised. Do this many times and the volatility of the markets is likely to break your bank.
> 
> Long term financial investing is preferable in my view, but still a risk and in some cases may lose. Returns are smaller, but the chances of obtaining a return on your investment is greater even if it will not make you a millionaire so easily!.
> 
> I am willing to bet anyone on here that if we could check the accounts of spreadbetting companies that at least 75% of their customers lose money over time. Anyone want to make a market on this?
> 
> By the way, buying shares gives you an asset, dividend income, and your loss is limited to the value of the share. Holding long term it is the DIVIDEND income that makes most of the return on a share investment. Spread betting does not offer you dividends on your spread bet and so long term cannot compare with holding shares directly.
> 
> Spread betting = gambling. High risk for potential high reward, high risk for potential big losses. Take your chances but at least be informed!
> 
> Cheers


 
Ok - 2 things.

Firstly - spreadbetting *does* pay out dividends just like regular shares do.

Secondly - answer me this:
Do you consider CFDs gambling ?
Spreadbetting is exactly like CFDs.
So whatever you think for CFDs then the same applies to spreadbetting.

And if you do consider CFDs gambling then why?
Because it is leveraged?
Because something is leveraged does not mean it is gambling.

A lot of people would consider property as 'investing' - that too is levergaed.
WOuld you/have you always considered property gambling ?


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## spreadbet

CFD's are a short term trade, and as with all short term day trading or short term leveraged property buying/selling by individuals I consider these to be gambling. CFD's are also leveraged and so carry a similar risk to spread betting I think. I have read that CFDs are banned in the USA?

Spread betting does not pay dividends although might make some soirt of adjustments which net out to almost nil, as the share price falls after it goes exdiv, and I think you will find out that you lose out because of this. Although spread betting should not be used for long term investing anyway, the financing costs itself make it not worthwhile.

As for the spreadbetting is 'free of tax' argument, if you are making losses then free of tax is not such a good deal anyway, as no tax to pay! If it was taxed and losing spreadbets could then create tax losses which could offset other income it might be better for most if it was not tax free! But I expect you will find that at least here (UK) that the Government will not tax spread betting as with other gambling I am sure they are aware that more people lose money than win, so it may cost them more in tax relief for the losses of the majority than they would earn from taxing the gainsof the minority


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## Duke of Marmalade

I agree with _keyboard_. _Spreadbet _has repeated well worn prejudices against FSB. Let me attempt to debunk these with a simple example.

_Delta_ is currently quoting 12583/12595 for S&P December futures. Let us take a long position of 1 € of these. What economic interest do I have?

I have the upside of €12,583 worth of S&P "shares" *including their dividends*.

The spreadbetting fees are €12 in the first quarter and €6 per quarter thereafter, i.e. the spread - this is the bit most people don't get, the spread on a future is the only fee suffered and includes costs of leverage. Annual fees therefore €30 in year 1 and €24 p.a. thereafter.

I need to deposit €350 so that is an annual loss of net interest of say €12.

Total annual cost €42 year 1 and €36 p.a. thereafter = 0.3% p.a.

Gains are tax free and the effective tax rate on dividends is 20%. Another advantage is that there are no exchange costs, the transaction is performed in Euro. 

Even as a long term proposition no other alternative comes near to FSB in giving such cost and tax efficient exposure to an index like S&P. Other indices are similar if not quite so spectacularly cheap. 

Individual shares are more expensive and a rule of thumb is that if you intend to hold for more than 3 years direct ownership might be better.

A few other myths need debunking. FSB does not make its money because on balance its customers lose. It hedges every transaction. In a bull market the majority of FSB customers win because they are generally long. This is the exact same as for stockbrokerage. 

It is true that gambling is not subject to CGT because the Revenue would be a net loser. FSB exploits this by couching share investment in the language of betting, but make no mistake the Revenue would like to subject FSB to CGT just like direct share ownership, because in the long run share ownership and FSB makes gains for its participants.


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## spreadbet

Harchibald,

And if the index faslls 351 points at ANY time after you make your bet, likely in market volatility, you are wiped out. Repeat this several more times and you could easiliy lose thousands. 

And this assumes you have a stop loss. Without a stop loss you could lose thousands in a day a few days. Markets do not go up and down in a linear fashin, even bull markets.

Best hope that you either are able to risk a large amount of capital to bet without a stop loss (in this case a bear market could wipe out a large part of it), or have the foresight to buy into a bull market that never goes down by a small amount at ANY time after your bet. Most people cannot afford the capital to do the former, the latter is simply a big gamble IMHO.

This ignores, costs such as financing, margin, dividends etc. By the way some people buy shares for income (cash dividends) not for capital growth. Spread bets do not pay you cash dividends, no matter how prices might be adjusted.


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## Duke of Marmalade

_Spreadbet_, I clearly don't explain myself very well.

My example is *economically identical* with having €12,583 invested in the S&P, being charged 0.3% p.a. (all in, including spreads, margins, leverage etc.) and enjoying dividends net of 20% tax and free of any CGT.

Talk of being wiped out misses the point as the risks of being "wiped out" are *exactly the same* as those attaching to €12,583 direct investment in the S&P.

You also seem to take the view that unless you receive your dividends in the post they should be ignored. 

Because of the high leverage, the situation needs a bit of managing to make sure one is not automatically stop lossed, a small burden to suffer for the extremely cost and tax effective access to S&P tracking.


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## z106

_Spreadbet_ - I think we have to define what gambling and investing is first.

Brendan gave a good definition earlier in this thread that i would agree with (or it may have been another thread).

He said:
Investing is something which if you do over the long term you can have an expected positive return.
Gambling is something which if you do over the long term you can have an expected negative return.

I for one think that is a good way fo defining the difference between both..

Firstly - do you agree with these definitions first?
Because we all at least need to know what exactly we are arguing about.
If you don't agree with these definitions then can you put forward your own definitions please.

Assuming you do agree with these definitions, then lets move on from here.

You seem to focus in on the leverage factor.

Just to clarify - is the leverage factor the primary reason that you deem it gamblng?

If not, then what is the primary reason you deem it gambling?

Spreadbetting certainly can lead to big losses - that doesn't mean it *will* lead to big losses.

Many people use a successful trading strategy.

Yes - many people also lose.
However - the reason is because they do not use a good trading strategy.
Not because they use the vehicle of spreadbetting to apply that trading strategy.

To sum up - you shoud look on a spreadbetting company as your broker.
It really is no different than that.


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## Duke of Marmalade

_Keyboard_, I suggest that the definition needs a little refining as follows:

*Gambling is where the risk of loss is disproportionate to the expected return.*

Clearly it is *necessary* that the expected return is *positive* to avoid being gambling, but this is *not sufficient*. €1m bet on the toss of a coin to win €1M + €1 is still gambling in my book despite the positive sum game.

Now when it comes to stock trading I believe that all short positions have a negative expected return so short selling is in my book always gambling (unless hedging a direct long position).

Long positions should have a positive expected return but if the position is only very short term the risk would be disproportionate to the small positive expectation. In my book short term long positions are also gambling.

Of course, the _Boss'_ definition is a bit more subtle, it refers to performing an activity _over the long term. _Perhaps a persistent strategy of short term long trading is in the long term investing after all, if you see what I mean.


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## z106

Harchibald said:


> Now when it comes to stock trading I believe that all short positions have a negative expected return so short selling is in my book always gambling (unless hedging a direct long position).
> 
> 
> Of course, the _Boss'_ definition is a bit more subtle, it refers to performing an activity _over the long term. _Perhaps a persistent strategy of short term long trading is in the long term investing after all, if you see what I mean.


 
Ok - i'm prepared to go along with your theory that the return most be sufficient to deem it gambling.
That said - strictly speaking - if there is a positive expectancy then I think it is ok to call it investing.
Anyway - we won't get too bogged down in the exact semantics.

However  one thing i don't agree with you is that short selling is gambling.

I don't fully understand how you can conclude this.

The way I see it is,as long as you have a strategy that has a positive expectancy (regardless of the market being up,down or sideways)  then I would call it investing.
I don't see the relevance of which direction the market is going to produce this positive expectancy.
i.e. the direction of the market is irrelvant - what is relevant is the expectancy of the system utilised on the underlying market.

And if that system is a short selling system then so be it.


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## z106

spreadbet said:


> Spread bets do not pay you cash dividends, no matter how prices might be adjusted.


 
_Spreadbet_ - will have to dispute this...again.

spreadbetting compnaies indeed do pay dividends.

I have received them myself in the past.

this one isn't up for debate I'm afraid.

if for some odd reason your spreadbetting company does not pay dividends then I suggest you change spreadbetting company.


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## Duke of Marmalade

qwertyuiop said:


> However one thing i don't agree with you is that short selling is gambling.


Yep, we fundamentally disagree here. I believe in the equity risk premium. That is, the market prices an expected return on equities in excess of the risk free return, so as to compensate for the risk. 

A short position in equities must pick up the negative mirror image of this. I can't accept that the person in the short position has an expected positive return as well as the person in the long position.

Your argument seems to be that one can develop strategies to exploit market anomalies which may involve short selling. Here I am extremely skeptical - my underlying premise is that you can't systematically "beat the market".


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## z106

Harchibald said:


> Yep, we fundamentally disagree here. I believe in the equity risk premium. That is, the market prices an expected return on equities in excess of the risk free return, so as to compensate for the risk.
> 
> A short position in equities must pick up the negative mirror image of this. I can't accept that the person in the short position has an expected positive return as well as the person in the long position.
> 
> Your argument seems to be that one can develop strategies to exploit market anomalies which may involve short selling. Here I am extremely skeptical - my underlying premise is that you can't systematically "beat the market".


 
Ok - just to clarify this further a little, what you are saying is that people that continually go short will in the long run have a system with a negative expectancy due to the very nature of short selling?

Is that the crux of your argument?

If it is then either there is something which i do not understand or else what you are saying is untrue.

What is wrong with building a trading system around short sellling?
As long as you have your reasons to believe something will go down and have your usual rules of how much to risk, stop losses, no. of positions etc. I see no reason whatsoever why one cannot build a successful trading system in going short. 

In fact - some hedge funds *only* go short.
(don't ask me to name them but I do recall on numerous occassions reading articles on hedge funds that only go short)

Or is our difference that I refer to trading systems and perhaps you are referring to long term buy and hold?


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## Duke of Marmalade

qwertyuiop said:


> Ok - just to clarify this further a little, what you are saying is that people that continually go short will in the long run have a system with a negative expectancy due to the very nature of short selling?
> 
> Is that the crux of your argument?


 
Yep, that's about it. I don't believe in _alpha_ (the ability to systematically beat the market). I believe in the market. The market tries to reward long positions. A short position is a clear statement that you believe the market is wrong. The fact that one has a "trading strategy" which identifies times when one should short means you have a system for spotting market mistakes. 

But that is the skeptic in me, clearly there are a lot of very highly paid people claiming to have _alpha_. I will grant one thing, if you believe that some managers can systematically outperform markets with long positions then I suppose one has to concede that this skill could also be applied to appropriate shorting strategies. But as I say I am extremely skeptical, a real believer in low cost passive index tracking.


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## Flax

*Re: The difference between Investing and Gambling*



Brendan said:


> They will also tell you that they are all winning. All my friends who play poker on the net are winning. It strikes me as odd but there you go.


 
Hi Brendan

I used to work for a bookies. A lot of my friends are regular gamblers who say they are up money. I asked them if I could check their balance (it was online gambling so I could see if their accounts were up or down money.) Without exception, every single one of my friends was down money, some of them down thousands.

The same bookies I used to work for closed all winning accounts. The assumption was they must have inside information (e.g. which horses have a cold or whatever) as it was not possible to repeatedly win long term. So if you're a gambler, and your account has not been closed, you are losing money...

Note I didn't deal with poker, but I would imagine the same delusions apply there.


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## Duke of Marmalade

If _keyboard_ or a hedge fund has a system for spotting market pricing anomalies then of course there is no reason why these anomalies should not be a mixture of over and underpricing and if an overpricing is identified then of course a short position will have a positive expected return.

But if one has no reason to believe the market price is "wrong" then a long position has a positive expected return (vs risk free) and a short position has the mirror image negative expected return.

I have seen many surveys about whether managers or hedge funds can beat the market and I am very skeptical whether they can. Certainly lil' ol' me ain't goin' to find such a system, but maybe _keyboard_ has, fair play to her, she should rapidly become a multi zillionaire.


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## zephyro

qwertyuiop said:


> I don't agree.
> 
> Explain that one to me.


 
It's very simple, the expected return of a long position is positive over any timeframe you choose, i.e. the probability of the return on a long position being positive is > 50% over minutes, hours, days, weeks etc. etc.


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## z106

zephyro said:


> It's very simple, the expected return of a long position is positive over any timeframe you choose, i.e. the probability of the return on a long position being positive is > 50% over minutes, hours, days, weeks etc. etc.


 
Right. That's where I diagree with you.
Without doubt, the shorter the timeframe the closer it is to random as to the outcome. 
The timeframe is crucial. You ignore this fact. 

In fact - someone can identify situations whereby the probability of something falling is > 50%.
This is done all the time by traders.

Thsi still doesn't takle away from the fact that over the long term that particular asset is more likely to rise than fall.
The point is that on its way it will have swings of up and down albeit with the primary trend being up.

Many traders take advantage of these temporary downswings to develop a system with positive expectancy whereby they shortsell.


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## Duke of Marmalade

So that explains it. _Keyboard_ believes that the market is imperfect but more importantly that shrewdies can spot when it is wrong. 

I am sure the market is imperfect but much less sure that anyone has a system for spotting these imperfections before they get corrected. 

If _keyboard_ has such a system that's a very nice spot to be in.

Getting a bit back on topic I don't know whether I have made the point before but the very obvious difference between sports betting and FSB is as follows. With sports betting the bookie can only win if his customers in aggregate lose. With FSB both the firm and its cutomers can both win, just as is the case with stockbrokers. In fact in bull markets a win/win situation would be the norm.


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## Duke of Marmalade

RTE Newscaster had to explain for the populace what "_short selling_" was. "_Betting that a share price will fall_" and he wasn't specifically referring to FSB. That about sums it up, no fancy talk about investment strategies in that definition. 

Anyway glad to see the short sellers got toasted this morning. Anglo up 70% wow!!  And my IN carpetbag about to pay off as well.  Happy days are here again.


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## Sunny

Harchibald said:


> RTE Newscaster had to explain for the populace what "_short selling_" was. "_Betting that a share price will fall_" and he wasn't specifically referring to FSB. That about sums it up, no fancy talk about investment strategies in that definition.
> 
> Anyway glad to see the short sellers got toasted this morning. Anglo up 70% wow!! And my IN carpetbag about to pay off as well. Happy days are here again.


 
But you can use the argument to say that going long means you are "Betting that a share price will rise"!! Just because I have the opinion that a share is overvalued doesn't make it any less valid or less of an investment strategy than a person who thinks it is undervalued. It's how markets work. There is nothing inherently wrong with short selling but I can understand why they are placing a temporary ban on it at the moment.


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## Duke of Marmalade

Sunny said:


> But you can use the argument to say that going long means you are "Betting that a share price will rise"!! Just because I have the opinion that a share is overvalued doesn't make it any less valid or less of an investment strategy than a person who thinks it is undervalued. It's how markets work. There is nothing inherently wrong with short selling but I can understand why they are placing a temporary ban on it at the moment.


My argument is that financial economics teaches that share prices in an efficient market have an inbuilt tendency to outperform risk free - the so called equity risk premium. However, I agree that short term long positions are little different to their opposite short positions and amount to betting that the price will rise by more than that inbuilt premium which is commonly cited as a mere 5% per annum. Short term traders are looking for 5% per day, and that has to be speculation/betting unless they have insider knowledge.


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## RichInSpirit

Hi everyone from this newbie.

Ended up here tonight instead of going to the pub which was on my mind too but I got too fascinated by this website.

I want to start a new thread shortly but after reading a lot of the spread betting threads I just want to add my two cents here.

I've been financial spread betting since about October 2009. I haven't been keeping proper records up to lately but I have lost money overall on it so far.

I have a small number of real shares too with an Irish Broker that I'm losing fairly substantially on as well. (from February 2009)

On the question in the opening post I think that financial spread betting and CFD's are nearly the same, but with a huge difference that hasn't been covered here and that is that CFD's look and act like 'Real' shares while Spread Bets look completely different but if you strip back the formatting behave exactly like CFD's and ordinary shares.

The differences are kind of psychological but the different format makes you think and act a lot differently. I still find it slightly confusing at times, but I have a spreadsheet done for myself where I can see clearly what I'm looking at in terms of equivalent number of shares and value as well as the leverage levels (or lack thereof ! ). And not get scared into acting against what I want to do.

I'm holding one losing position for well over a year and there is a financing cost of 2% per annum paid daily for rolling over which I don't think is probative. And the bet is completely open ended so I can wait for years for the position to recover.

My resources are rather limited and the minimum charges for regular share trading with my regular stock broker would make it completely uneconomical to do any buying or selling of normal shares.

I can however mimic real share trades with the spread betting without any transaction fees or costs other than the overnight financing costs. 

So I can do a low level of trading which is both a hobby and I'm hoping to someday make a nice return from it. 

And the real shares as well of course !


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## Tom

Hi, I am only new but this one caught my eye as I had a debate about it not too long ago. Essentially, spreadbetting and CFD's are betting and not investing. Think of it like this (or just look at the name in spreadbetting. There is a big hint there), investing occurs when you invest money in a business or asset class. Its real. It can be touched, its a part of something real. You buy a share in a business, you invest in that business. You put money on the chance that a stock price will go up or go down, but you dont actually invest in that company - this is betting. You may as well go to Paddy Power and ask him for odds.

Pretty plain and simple in my eyes.


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## RichInSpirit

Tom said:


> Hi, I am only new but this one caught my eye as I had a debate about it not too long ago. Essentially, spreadbetting and CFD's are betting and not investing. Think of it like this (or just look at the name in spreadbetting. There is a big hint there), investing occurs when you invest money in a business or asset class. Its real. It can be touched, its a part of something real. You buy a share in a business, you invest in that business. You put money on the chance that a stock price will go up or go down, but you dont actually invest in that company - this is betting. You may as well go to Paddy Power and ask him for odds.
> 
> Pretty plain and simple in my eyes.



Yes, I get the real share thing versus the CFD's, spreadbetting.  
With real shares your money goes into the company, boosting the share price etc. and conversely when you sell the opposite happens. 
But the transaction charges and stamp duty are a killer unless you are buying and selling thousands of shares at a time.
And the spread betting, CFD's (derivatives) offer a way around the charges for some of us small fry.
And sometimes the derivatives companies hedge in the real market if there are huge positions open, so the derivative position can have an influence on the real market.


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## darag

Duke of Marmalade said:


> Interesting debating point whether s/t traders perform a social service. Personally I think they push the bounds of efficiency over the top to the point of instability.


The evidence (where this has been studied) contradicts this belief. Liquid markets are generally less volatile and short term traders are huge providers of market liquidity.



> On a philosophical note ain't it marvellous that we have developed the most sophisticated technologies for communicating with each other, for travel and transport, for healthcare, for information systems etc. etc. and yet the cornerstone of our economic system is a delinquent and irrational casino known as the stockmarket. I 'm no pinkie but it is surely not beyond the wit of man (or woman) to devise a more sophisticated and robust allocation of our economic resources.


It's ludicrous to claim that the stock-market is the "cornerstone of our economic system".  The amounts of money involved in stock trading is a minuscule fraction of the financial transactions which underpin our economic system.  The prices of stocks as established on these secondary markets have some influence on the allocation of capital but compared to the influence of debt markets, banking, fiscal and monetary policies, property markets, etc. it is small.

You don't have to look far; the 15 year boom in Irish stock prices certainly had an effect on capital allocation but compared to economic effects of the property market bubble or government spending policy, it was barely significant.


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## darag

Tom said:


> Hi, I am only new but this one caught my eye as I had a debate about it not too long ago. Essentially, spreadbetting and CFD's are betting and not investing. Think of it like this (or just look at the name in spreadbetting. There is a big hint there), investing occurs when you invest money in a business or asset class. Its real. It can be touched, its a part of something real. You buy a share in a business, you invest in that business. You put money on the chance that a stock price will go up or go down, but you dont actually invest in that company - this is betting. You may as well go to Paddy Power and ask him for odds.
> 
> Pretty plain and simple in my eyes.


If it were plain and simple, this debate wouldn't resurface every few months here.  It's actually a very subtle issue.

For example, you are mistaken in your understanding of share investing.  Nearly always, when you buy a share of a company, you are purchasing it from someone else who wants to sell the share.  The company itself has no part of the transaction and doesn't benefit from you buying the share.

As far as the balance sheet of the company is concerned, it doesn't matter whether you buy its shares on the secondary markets or bet on the price going up with paddy power.


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