Please explain how I can make money from CFDs

[Brendan Burgess]

And the difference with betting on horse racing is?

A bet on a horse has a binary outcome. It wins or loses.

A spread bet is open ended, unless you hit your stop loss. So I could bet on Ryanair shares at €10. If they rise to €11, I am up €1, but I can keep my bet open or close out and take my profit.

There is a long discussion here where I insisted that spread betting was pure gambling but I missed a vital point about it
Is financial spread betting gambling or investing?

In summary, if I buy Ryanair shares for the long-term any increase in value in the underlying shares will be reflected in my bet.
If I make a gain on a direct investment in Ryanair shares, I pay CGT.
If I make a gain on a spread bet, it's tax free.

So my view today is
Short term speculation through direct buying of shares is gambling.
Buying shares directly for the long term is investing.
Taking a short-term position in shares via a spread bet is gambling.
Taking a long-term position in shares via a spread bet is gambling for tax purposes, but the case can be made that it is an investment.

Backing horses is always short-term and is always gambling, unless you have inside information or unless you are a professional gambler who keeps a record of your bets and can show an ability to identify wrongly priced horses.

Brendan

 

[Gordon Gekko]

Could you expand, please? As mentioned a few times in my diary, I've used spread bets to short Tesla. Are you saying I should have used a different product?

Hi Colm,

My strong suspicion is that the comment wasn’t aimed at you. You are an actuary and, to all intents and purposes, a professional investor.

You can use spreadbets and CFDS because you understand their complexity and the danger of leverage.

Most other people are like Forrest Gump trying to consolidate a set of group accounts; the average spreadbetter is a lamb to the slaughter.

Gordon

 

[EmmDee]

Hi Colm,

My strong suspicion is that the comment wasn’t aimed at you. You are an actuary and, to all intents and purposes, a professional investor.

You can use spreadbets and CFDS because you understand their complexity and the danger of leverage.

Most other people are like Forrest Gump trying to consolidate a set of group accounts; the average spreadbetter is a lamb to the slaughter.

Gordon

Compared to other OTC or derivative products, spread bets are actually pretty liquid and have price transparency so are probably the best product for what Colm is looking to achieve. They are also pretty cost effective for that scale of activity as well.

 

[Colm Fagan]

@EmmDee @Gordon Gekko
Thanks guys/gals. I wasn't taking @demoivre 's comment personally. It's just that I read him/her as saying there were better ways of achieving what I'm trying to achieve. And yes, Gordon, the spread betting companies regard me as a "professional" , which means that I have lower margin requirements, but I'm not afforded the protections that retail investors enjoy (if "enjoy" is the right word).

 

[demoivre]

Could you expand, please? As mentioned a few times in my diary, I've used spread bets to short Tesla. Are you saying I should have used a different product?

Spread betting may be tax free but it's not a level playing field as the spread and the price will always be against you and spread bets, like CFDs, are not exchange regulated. Trading individual shares , even using futures or options where they exist on the share, is inherently more risky than trading futures on, for example, indexes because of potential price swings. A 10% fall in the FTSE would be headline news ! That could happen with a share in the blink of an eye.

I don't see any advantage whatsoever of trading CFDs, where a futures contract exists on the product. You might as well trade the futures contract itself, which are exchange regulated, using a direct access trading platform with a low commission broker.

 

[Zenith63]

Taking a long-term position in shares via a spread bet is gambling for tax purposes, but the case can be made that it is an investment.

The main concerns I have are how long this tax treatment will last, how it will be treated if it ends and the safety of the SB companies out there. Other than these point, personally I see little difference between buying and holding shares in a nominee account and opening an unleveraged spreadbetting position; your exposure to profits/losses is the same, but you'll get to keep 50% more of your profits.

FWIW I have acquaintances who moved quite large buy&hold traditional share accounts to spreadbets they intend to keep open for years and have a couple open in the S&P500 myself, again never really intending to close them.

 

[Gordon Gekko]

My sense is that the tax treatment of spreadbetting won’t change because the majority of people lose money but can’t use the loss. The Exchequer actually gains from the status quo.

 

[Zenith63]

My sense is that the tax treatment of spreadbetting won’t change because the majority of people lose money but can’t use the loss. The Exchequer actually gains from the status quo.

What I suspect they could do is change the language slightly, to try and catch people who are not really gambling but just holding their investments in a vastly more tax efficient way . Maybe put a 1 month limit on how long positions can be held before they change from being a bet to an investment, that kind of thing.