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Thursday, 29 July 2010

Back from the Holidays

Back from the Holidays

I am back from the holidays. Everything has gone up except my trading portfolio

It’s been one year since I quit my job and started doing spread betting. I had lots of sleepless nights and made lots of money in a day and lost more than I made in a day too. At one point I nearly lost all my saving pot on spread betting. And it was all because of greed. My 2 years of trading have been very hard with many risks attached.

There were days where I was making 2-3 months’ salary in a day and periods where I was losing a whole year 's salary in a day too. During that time I spoke to several guys who worked for spread betting companies and they even told me that on a whole 80% people lose their whole pot within few months and stop doing this.

I was very proud of myself that I was making money every single day but then got big hit and lost months and months of profits. What's the point of that money which you can't spend. At the time I was betting £10 a point which went up to £100 a point even. Now I realise betting this much was a huge mistake and I wouldn't have ended with sleepless nights and no social life if I had placed more conservative stakes.

Reality has now set in and whenever I get a bad patch I stick to trading minimum stakes, it gives a good perspective on market dynamics, particularly currency fluctuations and indices, IMO. If anyone asked me if it's worth starting trading, 'I would tell them it's up to you, but I would not recommend it myself'.

Looking at my trading, if I put the money into a new business adventure I would have been looking at a much bigger bank balance now compared to what I have got from using my valuable time trading. It has been a good learning curve though, don't get me wrong.

Even doing share trading has its risk. Stocks may look like good opportunities if the market goes down again to new lows because we have seen many stocks risk over 100%, 300%, 500% even. But realistically normally you are lucky to get many stocks rise by 300% in a 5 yr or so period.

It is easy to lose money doing this, knowing when to cut a loss and when you've made enough can take a while to learn, and MOST IMPORTANTLY OF ALL PLEASE ONLY GAMBLE WITH WHAT YOU CAN AFFORD TO LOSE
Spread Betting Tips: Starting Out
Using IG Index to Trade the Stock Markets

Use a Traditional Broker or a Spreadbetting Provider?

I've tried trading with a traditional broker but will return to IG Index because of the tax advantage. Just to dispel a common myth about spread betting or CFDs. In my experience these are ideal instruments for taking a view over 3 months or less. You dodge stamp duty and you have the benefit of leverage etc...etc but of course this does incur finance. Hence my three months or less than statement above.

I use my ISA to trade FTSE 250 stocks and my spread betting account to trade smaller caps that I like the look of. Spread trading is currently tax free so you don't have to worry about capital gains tax. On the other hand CFDs (contracts for difference) are not exempt from tax but you do not have to pay UK stamp duty and losses can be used in future years to offset any capital gains. You can also trade other instruments or even go short when the market turns. You need to read up on the pros and cons but once you understand how things work, it can open up avenues for tax free trading that you can't get through an ISA.

How significant is the Tax Free Advantage of Spread Betting vs CFDs

It is a fact that most people aren't making enough to pay tax - a trading gain would be treated as a capital gain. According to the "2010 finance bill" drafted in the budget, the 2010-2011 tax year - current year - would allow some £10,000 before paying tax and then at a flat rate of 28%, this would mean that one could earn £20k per year off trading and pay less than £2000 in tax. If you had £50k in a CFD account, the interest would almost cover this.

Ensuring that investments are as tax-efficient as possible is important to successful investing and will obviously help boost returns. However, it is equally important that decisions are not based on tax considerations alone; for instance holding on to a falling asset because of the potential tax benefits can leave investors with inappropriate holdings and unsuitable levels of risk. Having said that tax can greatly change the playing field and may render certain activities prohibitively expensive, particularly for traders who are typically attempting to exploit tiny share price movements. Were it not for CFDs, spreadbets and warrants being exempt from the 50 basis points (0.5%) of stamp duty on share purchases, many strategies would not be feasible as the tax would eat up all profits.
This is my spread betting trading blog ;)