Critics Corner: Arguments Against

Whilst the experts are off-line, let me just don my tin-hat and groin-guard and put it to you that spread betting – particularly shorting – is legalised theft.  It is the most immoral and reprehensible thing you can possibly do.   It is a system designed to swindle ordinary buy-and-hold investors of their life savings.  Spread betting – penalises thrift, penalises patience and threatens the entire future of retail investment. It is using money you don’t have to lever share prices downwards to destroy the savings of honest investors.

My 0.2 cents on this topic: Spreadbetting is:

– Good: if you want to have fun with little effort; and small capital
– BAD: if you want to make money from the markets

Spreadbetters are middleman between you and the brokers/exchanges. It’s suffice to have a broker as a middleman; why add another one?  Its not a tax efficient way as the majority of people lose money. That’s the carrot to get your money in there. Remember that 80% of traders and investors make losses most years and only dream of paying CGT…then much of the 20% pay none because they make profits but within the allowance……I would say maybe 5% of those trading and investing actually pay any CGT on shares. The government know this and do not waste too much time chasing it unless it’s obvious someone is a lot richer than their tax return suggests. If CGT rises it should be with a return to tapered relief, eg hold an AIM stock for 3 years and pay no CGT. That’s good, it encourages longer term real fully paid for stock to be purchased and held. It will help reduce volatility from the market.

The only way to avoid going broke is to invest in shares and actually pay for them and hold them. Spread betting is exciting but who actually personally knows someone who got rich off the back of it? It’s just glorified gambling made to look professional with all the fancy screens and charts. At the end of the day leverage is very high risk and that’s why 99% of traders lose money.

Spread-betting is a mug’s game and most people lose money over time to the casino operator, ie. the spreadbet company. One of the main problems with spreadbets is how to place the stops. Big market moves against you can quickly wipe you out . Only guaranteed stops fully guard against that but are costly and exploited by other operators by generating sudden price moves at market open for instance , forcing undesired position closure. Also: if you bet the wrong way you definitely lose.

Never trust any of the spread betting companies. They are all out to catch you. Massive swings before a big move never correlate with the underlying market.
close stops often get stopped out. I now never post stops with my trades, they have a uncanny habit of being hit, especially in the early hours when you’re asleep!

Spreadbetting – I would agree, I got burnt and now only trade with guaranteed stops, it can be restrictive, and I am fully funded in my IG account. I also do hold shares as well, but i have over 10 years experience of spreadbetting and it is nothing more than a glorified bookie! The spread bet companies can be a law to themselves. That said, I have made 50K in last 4 months, starting from nothing, as had to buy out ex (very greedy) wife! I also put it down to a once in a life time set of economics that has made a lot of equities very oversold, and to be honest a monkey with a pin might have done as well as me!

The idea that it’s possible to predict short-term price movements of shares is nothing more than fiction. Of course, spread betting providers will tell you that ‘the trend is your friend’ and that various technical tools can help you judge price movements. However, it does not work in the long run because the technical analysis tools only give guidance on the current sentiment, they do not tell you what sentiment will be like in future, because it is impossible to consistently predict it. Share prices react to news flow and you are unable to predict the news flow, no matter how clever you are.

Tread very carefully with spread betting companies they use every and I mean every trick in the book to catch you out. The odds are stacked against the novice trader big time. Also if you own a share at the end of the day if it tanks you still own it and it could well come back at some point. remember with spread betting you own nothing, once that stop is hit your money is gone. The leverage thing is all part of the smoke and mirrors because most times the leverage will go against you. The spread betting companies have it all ways. There is a larger than normal spread that you pay as soon as you open the position and they hedge your stake s soon as you open. Most times the positions go against you so they are doubling up. I tried it and lost money I was currency trading which I must say is the crack cocaine of the share dealing world.

Lots and lot of people have lost their money, houses and families due to the attraction of spread betting leading them in to financial ruin.  Its all about dangling the carrot to get you to over commit yourself. That’s why they harp on about “tax free”.  When you buy shares they are paid for, if the markets go up or down you do not care, your stock is paid for and there are no demands on you, you simply hold through bad times.  When you spread bet the temptation is always to buy more and more and more, they tell you not to worry, only need a small deposit and you can buy more and more – but they fail to force it into your head that if the share prices go down, so does your actual balance and suddenly your balance is low and your deposit required remains the same and then the margin calls start to come in thick and fast.  Spread bet if you are an expert and know how to play the game, if you are not then do not get involved with spread betting or CFD or anything else like that.  I do use them sometimes, but generally only in the November to April period when generally markets are going up and there is a lot of liquidity in the markets and less volatility. Spread betting in the May to October period can lead to massive losses.

The only way to consistently profit day trading indices is via a futures broker with a proper trading platform and order book.  With spread betting you are trading on their prices and they are skewed significantly to their advantage. Spread betting indices intraday is a road to failure, trading “in and out quickly” or scalping is not a long term profitable option. Only spread bet indices over longer time frames. The current market volatility will not be around for the long term.   Of course if you’re just interested in making a few weeks of quick intraday profits from indices during these conditions then spread betting is fine for that purpose.

Shorting, in particular spreadbetting, is a disease on the market and has only made investing more volatile and, in my view, contributed to the increasing financial self-destruction in recent years.  I would ban spread-betting for a start. Tax-free where only the spreadbetting companies pay tax to the government. What’s the point? I was delighted Europe banned shorting on their banks recently – 15 days wasn’t enough.  I believe it is immoral. I invest because I want small exciting companies to do well and expand. The likes of Evil Knievel are nothing more than parasites.  The bottom-line is, spreadbetting has increasingly turned stock markets into nothing more than a pure casino. It is absurd that the world’s prosperity is now a slave to such a high risk practice. No wonder the West is in such a financial mess.

Leverage for “fast-buck” speculation domestically (CFDs, spread-betting, etc.) should not be permitted IMO. Similarly the myriad of derivatives available commercially needs curtailing – the latest HFT techniques for producing money out of thin air disgust me …. I think it’s called greed. Spread betting creates and magnifies violent movements in share prices at times when calm and stability are most needed. It is the pursuit of short term greed – the antithesis of building long-term wealth. It is a cancer in the market.

I’d rather be a real investor than a leveraged gambler – you know where you stand at all times and have total control over the portfolio. People will eventually learn that spread betting gives the hedge funds ultimate control over YOUR money.

Spread-betting is probably a fools game unless one is prepared to cover 100% and treat the trade as an investment. Folk should always determine their own risk and trading decisions. Indeed, it is possible to win on spread bets and CFDs but it requires luck as well as good money management. You only need to look at the size of these companies, and their high advertising budgets, to see that the punters MUST lose even to pay the staff, offices, computer systems, financial reserves, advertising… Napoleon used to ask of his generals, before making a senior army appointment, “Is he lucky?”.

I don’t think I’m enjoying it like I used to. The stock market is different. It’s not a place to invest anymore, it’s now a crazy casino. High frequency trading, spread betting and CFDs have increased the volatility to unacceptable levels where large caps are far more volatile than small caps. Governments have allowed this to happen because they are clueless. So all the high risk money is gambling in equities and all the cautious money is in bonds. I used to enjoy finding small cap value and buying to hold over the medium term. Eventually the value would out. In these markets even in you find values you can get murdered in the short term waiting for the medium term. Governments need to decide do they want a platform for investors to invest in businesses that create wealth or do they want a computer driven casino where the investment banks can chew off lots of little bits of dust from the oak trees of wealth like woodworm these institutions are.

What spread-betting has done is turn investors away from long term investing and more into short “termism”. This only adds to the overall volatility. It becomes a catch-22. Because of this volatility fewer personal investors today are investing in the stock market. Some had their fingers burnt in 2000, agreed, but before the increasing practice of spread-betting, the markets were generally less volatile and therefore encouraged investors to hold longer term. That is not the case anymore. The irony is, short-term holders benefit from this. Even Institutions are practicing this today. Yet, holding long-term is highly beneficial to the markets. It offers stability and solidity, which then encourages personal investors to invest. A new form of investment must be created which not only offers stability but an opportunity of a reasonable return. If not, pensions etc.. may simply cease. The stock market, as we understand it, is reaching the end of a natural cycle – what follows is self-destruction and a system which won’t and can’t work for the vast majority of investors. It has to change. You cannot rely on a pure casino for the world’s future prosperity and financial stability.

CFDs, spread betting, forex, futures…etc tend to lure you into gearing up at the wrong time imo – you get over confident. It takes huge dicipline to trade with these imo and I’d bet 100/1 that you do better with real shares in most cases unless you have the discipline of a kung-fu priest!

I am being told by a number of acquaintances that spread-bets are the way to go – because you can “buy” so many more shares than you could otherwise afford – but I tried that and didn’t like it. Too much worry messing about with stops for controlled risk and worrying about margin calls for non-controlled risk – you might as well just buy the stock and be done with it. Although I don’t see any other way forward than a combination of buy-and-hold and short term trading, to be honest. It’s a case of if you can’t beat ’em…..

Spread betting and shorting should be restricted to FTSE 100 where ramping and de-ramping will have less of an effect than currently on the stock prices of small caps.

80% of all spread betting and hedge fund participants get washed away, ‘fact’, don’t think for one moment that your intellect places you in the remaining ten to twenty percent, close your positions and be long, the old fashioned way.

Be careful of spread betting, I tried IG Index they are thieves, they stretch the spread and if you set max loss price they will strike it, if it gets near to it, but if you set your profit price it has to go way over it for the contract to be closed. You then see your near profit get wiped away as price changes.

I understand day/swing/index/forex trading can go horribly wrong very fast. That’s why I try to keep my spreads tight but my stops even tighter haha (not too tight of course)… ;P

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