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A: Spread Betting is only tax free if it is not your main source of income. For that reason it is probably not wise when opening a spread betting account to put your job description down as 'day trader' or 'trader' as it would then be rather difficult to claim at a later date that trading was not your main income if the IR was to query where you made your money!!!
I spent ruddy ages trying to establish the position of spread betting with the revenue, and in the end it was pretty clear - perhaps this will ring true with those who have investigated this with the revenue themselves? If you have a 'subsistence income' (i.e. enough to live off) from an independent source that you pay tax on, then HMRC can't tax you on your spreadbetting activities. It's only if you have no other source of income and you use it for your primary income source that the tax advantages may disappear. Spoke to the revenue office in Nottingham with a technician there, who specialize in people who make a living from gambling, so I guess he knows his stuff. He deals with people playing the horses, dogs, poker, even casino games (!)
The vast majority who spreadbet, I would opine, do not do it for a living, and therefore they are completely safe from taxation. Those who do it for a living have enough cash to hire clever accountants who sort it all out for them. Nothing to stop a millionaire trader having a self-employed 'subsistence income' from a bit of consultancy work that he pays tax on. The revenue can challenge it, but due to the nature of current legislation, they're unlikely to win. Thing I discovered after starting work in the Financial Services industry is that tax law is much more open to interpretation than I ever imagined beforehand!
That said, I have never heard of anyone being taxed on spread betting but then people probably don't advertise the fact.
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A: This is what James from ODL Securities had to say when we posed him this question:
'Spread Betting is very similar to trading in shares. If you bought 1000 shares of Vodafone with a stock broker at 170p and sold them at 180p then you would have just made £100 profit. If you bought £10 a point Vodafone bet with us at 170p and sold at 180p then you would have made £100 also (£10 won per 1p movement in the share price). Therefore your exposure to gains/losses is the same in spread betting as share trading (not taking commission and spreads into account). Obviously if the share price had fallen to 150p then you would have lost £200 with your broker, and you would also have lost £200 on your spread bet with us (£10 lost per 1p movement in the share price).
Spread Betting under UK law is considered gambling, which means it has the benefit of any gains you make being free of income and capital gains tax (tax laws can change). Although officially deemed gambling, the mechanism of spread betting is extremely close to that of CFD trading, which is considered speculative investing. Therefore many of our clients benefit from trading in a similar fashion to CFD trading and enjoy the benefits of any gains they make being tax free. (both spread betting and CFDs are leveraged trading and you should be aware of the risks).
Spread Betting is simply another mechanism to speculate on movements in markets and the gains and exposure are equivalent to those in the underlying markets, such as shares. As you can see from the example in the first paragraph, you are in a very similar position spread betting to investing in shares, therefore spread betting is no more a zero-sum-game than speculating in share trading itself. Therefore if you believe share trading to be a zero sum game then spread betting is also.
Whether you lose money in the long run is based on a number of factors, but unlike say a casino that has a house edge, we have no such thing, we simply charge a spread which is equivalent to the commission you pay to purchase/sell shares. I have been involved with spread betting for a number of years and many clients made considerable amounts over the years, equally many have lost considerable amounts. The capacity to make/lose money was based on experience, knowledge, ability, skill, luck and countless other attributes.
Whether you consider spread betting as entertainment or a valid investment mechanism is down to how you intend to approach it. In a similar fashion to share trading, a small number spread bet for entertainment but the vast majority spread bet as an investment tool. Clients spread bet to gain similar exposure to the markets as speculative investing, but in a tax free mechanism. If you chose to spread bet then the reasons to do so should be based on what you are most comfortable with'.
Meanwhile Alex from MF Global Spreads commented:
'Strictly speaking all trading in any traded product or instrument is gambling. You do not know the outcome when you set out. You are hoping to increase your chance/odds using knowledge and information.
The advantage of Spread betting being classed as 'betting' is that there is no capital gains tax to pay on profit. Also there is no stamp duty (0.5% on stock purchase with actual shares) on spread bets.
Spread bets are an instrument which can be used for outright 'bets' on the market or as a hedge against a position, for example:
Entertainment: A lot of people consider 'playing' the markets entertainment, whether they are trading conventional shares, spread bets, etc. I guess that comes down to the individual and how serious they are about their trading. Not to say you can't be very serious and still be entertained analyzing the markets and trading on the back of that, formulating your own 'style' over time.
A lot of serious investors use spread bets for a multitude of reasons. Another of these is the geared nature of the products. For example FTSE 100 stocks require 5% to cover the position. i.e. the £10,000 stock spread bet will be covered by £500. This allows greater flexibility of funds. But of course the user has to be aware of the risks involved with gearing and manage their position likewise.'
Does anyone buy or 'invest' in companies to make a loss, of course not...they buy stock with the hope it will go up (unless you short it 
). They are betting that it will go up (unless one buys companies for their yields). If you ever read the great book about the legendary trader Jesse Livermore, he comments that 'the stock market is the greatest gambling arena of them all'
I would also say that very short term holding of shares is gambling. Short term holding of CFDs is also gambling. If you gear up ten-fold then you are also gambling because of the potential volatility – of course you could be knowingly having a calculated punt but you should not try to dress it up as an investment! Thing is derivatives be it futures, options, spread betting or CFD's can be used as alternative vehicle for investing if you know what you're doing and have a winning trading method with an edge against other players in the game.
All investments are to some extent a gamble. Even putting cash on deposit in a bank account, you're gambling the after-tax interest will be enough to preserve the inflation-adjusted value of your money (and in recent years this has mostly been a losing bet...)
There is no one definitive way to trade the markets. You can trade intra-day, or hold and build positions for a few days, weeks, months or even years depending on your view, timescale and available finances. The spread that someone pays currently on rolling over 4 futures contracts in the year is c. 5.6% (this means that your stocks have to rise 5.6% in the year for you to breakeven). 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.
If you are new to trading my advice would simply be the following. Study the markets as much as possible, learn some technical analysis and find a 'system' that you feel comfortable with, don't over leverage yourself and start small...Remember 80% of traders will lose in the long run. Sound money management, and discipline are imperative. No point making 50% today if you lose it all tomorrow and go bankrupt. I would also suggest having a plan for a trade before even consider opening that trade...
Trading can be risky, often stressful and sometimes almost impossible. Having said this however it can also be hugely rewarding, exciting and fascinating. Ultimately if you don't have a trading strategy spread betting can be a form of gambling, that said if you have a tested strategy in the market and you have risk management skills it can be used very effectively to your advantage.
A: Spreadbetting itself is quite easy, but making money isn't, and from that point of view you need to understand trading in general...
Do you know anything about trading at all? If not, browse Amazon and look for beginners trading books.
Key advanced books to invest in are Douglas 'disciplined trader' for the psychology of trading; John Murphy for technical analysis; for currency trading there’s for instance Raghee Horner and Kathy Lien's books.
Read the book - Trading for a Living: Psychology, Trading Tactics, Money Management by Alexander Elder. A damn good read about correcting your thinking and size of each trade... If you would like a grounding on technical analysis read a book like - Technical Analysis of the Financial Markets : A Comprehensive Guide to Trading Methods and Applications (New York Institute of Finance S.) (Hardcover) by John Murphy.
Don’t bother wasting your money on 'Guru' books written by so called experts who have made it big and are selling you the 'secret' to getting rich. Those books are crap and not worth the paper they are printed on. Nobody sells a secret trading methodology or goes on the trade show circuit giving seminars at £100- £2000 a head if they are really successful. The only reason these guys are writing books is because they didn’t make it as traders. And don't buy expensive system packages as you will not know how to make them work, and anyway they never work as expected.
Regarding trading platforms Simon, don’t bother spending money on big expensive programs and data provision services. These do not make you any better a trader and all the software you need is out there for free. Regarding technical indicators don’t search for the 'holy grail' - it's not out there unless you manage to build it yourself.
To start with keep charting simple, and use the free and cheap packages that spread betting companies typically offer to get you started – both Capital Spreads or Tradindex offer good no time-limit demo accounts; so use these as a sandpit for your strategies until you find a system that works for you. Only consider the expensive stuff once you have realized what you are doing - but, by then you will realize that it’s best to keep it simple and you will probably figure out that don't need expensive systems and tools.
Most people who attempt a trading career fail and it's not because of what you think. Trading is not really rocket science but it does involve some severe noose. Develop in yourself discipline, log a diary of all your trades, mistakes, when you do something right, anything less and you will fail. Begin trading for a long period on a demo account before risking your money but treat this as though it were real capital.
Oh, most important of all - read some stuff on money management and risk management. Succeeding at this game is not about being clever with setups, but is mostly about setting correct stops, managing the trade in motion (or setting definite targets), getting your exits right (i.e., you have no money until you close the trade). You need to plan your trades and be disciplined enough to manage according to your plans and once you have mastered that you will need to learn when to change the plan...
Don't expect miracles. Trading is not an easy way to quick riches. Be prepared to spend a year reading, learning and practicing; then open an account and be prepared to lose everything you put in.
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