Comparing The Costs Of Shares Trading To Spread Betting
I was comparing the costs of shares trading to spread betting just three weeks ago
when I was comparing Footsie 250 stocks and various spread betting prices and, let's say you'd got in and then got out straight away. In nine times out of 10, out of about 30 shares I looked at, it was cheaper to go down the spread betting route. You have an element of the margin costs of the spread betting but because interest rates are so low at the moment, I think it's a negligible cost anyway, but you have all these other benefits, like going long and going short, the leverage, spreading the risk, so that I think it is a serious alternative.
Even before you consider gearing, simply avoiding things that are inherent to share trading, such as capital gains tax, stamp duty and commissions all makes a big difference. Also the fact that Rolling Cash spreads are often the same as the cash market spreads means that there is no effective spread difference. However, it is not only the costs incurred whilst trading that should be considered but also the return on investment and that's when gearing comes into play.
If we compare shares versus CFDs, there are scenarios where you know the benefits of the CFD stamp exemptions are outweighed by the financing costs for a long period of time. With spread betting, however, the draw of making a tax-free gain is a powerful one. I think, for a spread bet, you can make a strong justification for taking a six-month or even a one-year position sometimes compared to a long position with shares. So I would generally advocate a spread bet selection over a share investment, unless you've got a really long-term view.
However, it is important to remember that spread betting is not intended to be a buy and hold strategy. This is far more short-term orientated although there are of course clients who tend to hold a position for a few months. If you have a view up to maybe three to six months, I think there's a definite argument for going down the spread betting route; it's not just a tool for short-term punters in and out of the market 50 times a day.
by: luckystrike
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