Dealing charges are nil but you may pay a little extra in the “buy-sell spread”. The spread is the main cost to financial spread betting clients. The wider the spread, the more costly it is for you to trade.
For shares there are two types of bets; daily or quarterly. Daily spreadbets can be closed at any time or carried forward, with a daily financing fee being charged for rolling a position overnight. At the moment this is based on approx 4% p.a, so £1000 trade costs approx 11p per day. For quarterly contracts there is no financing fee as this is built into the buy-sell spread price.
Just looked on my system to give you an example:
GSK cash bet – 1033.72 sell or 1035.78 buy
GSK Quarterly – 1037.21 sell or 1040.83 buy
The live market price quote is 1034 to 1035.5
There are also no stamp duty or commissions with spreadbet. For short term trades there are big savings to be made, especially on lower value trades (say below £1000). In fact if you are dealing in shares, one option at your disposal would be to consider financial spread betting as this is currently treated as gambling and therefore non-taxable.
Why is the time limit in spread betting generally not longer than a quarter? For example, if you wanted to bet on the currency, why can’t you do it over a year or more?
There are various lengths of bets. If you get into daily betting (not advised if you are just starting out), you would roll over a bet to the next day and pay interest. You can bet on currencies for a year just by leaving your bets running. The cost of financing is minimal compared to the value of the spreadbet. For example trading GBPUSD at current level approx 1.45 is worth £14500 and costs 1p per day on a ‘long/buy’ position. With shares you will find that the quarterly bets are better value than rolling daily bets if you hold the position for more than a few weeks or months. Spreadbetting companies based in the UK also offer bets on certain USA stocks (major companies), it’s quite limited though, also the US exchanges are covered as of course is forex.
The problem with closing a bet one day and re-opening the spreadbet manually the next day is two-fold:
- You are paying for the buy-sell spread twice
- The market often spikes in the morning so you cannot get back in at the same price you got out the night before!
As always the risk with spread betting is if you get it wrong you can lose a lot more than your original stake. If you get it right you can make a fortune too. You can always start off doing very small trades, using minimum bets and starting with a liquid FTSE spread betting stock like Vodafone (currently trading at 167.75p) where you can do a bet at at £1 per point and your max loss would be £167 plus financing costs of approx 1p per day. Note that there is no stamp duty when spreadbetting – only when buying UK shares.
Note: Apart from the occasional day trade, most of my spreadbets consist of quarterly plays. A few with June expiry but mostly March. I cease opening current-quarter bets about 2 months into the quarter. Most are fitted with automated trailing stops. Sometimes (like about now on a Friday) I will temporarily tighten the stop loss settings for the weekend (accepting the risk of getting stopped out of one or two on the Monday morning). And there are other occasions where I push the stops up tight – getting myself stopped out now and then. So quite a few don’t run continuously towards the eventual expiry date without being reopened along the way. Among the March ones that stay the course, some I will roll over into the next quarter, others will lapse on the expiry date. A lot of my quarterlies get closed long before expiry (especially losing ones of course).