Is financial spread betting gambling or investing?

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.
 
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)
Click to expand...

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
 
Re: The difference between Investing and Gambling

Brendan said:
Buying stocks is not gambling.
Click to expand...

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.
Click to expand...

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?
 
Re: The difference between Investing and Gambling


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)
Click to expand...

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.
Click to expand...

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.
Click to expand...

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.
 
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 !!
Click to expand...

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
 
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.
 
Re: The difference between Investing and Gambling


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.
 
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.
Click to expand...

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
Click to expand...

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.
Click to expand...

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
 
Re: The difference between Investing and Gambling


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).
 
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.

Spreadbetting 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.
 
Re: The difference between Investing and Gambling


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 !!
 
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
 
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.
 
Re: The difference between Investing and Gambling

Brendan said:
Qwerty

Spread betting - on shares or horses or football is gambling.

Brendan
Click to expand...

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.
 
Re: The difference between Investing and Gambling


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)
 
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?
 
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
 
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.
 
Re: The difference between Investing and Gambling


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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