The margin on spread bet and CFD accounts are about to increase significantly. Why?
Many (and indeed any accountants we’ve spoken to) consider spread betting in the same light as a sports betting app.
They couldn’t be more different. Financial spread bets and CFDs demand a different level of consideration to sports betting. The difference between a CFD (contract for difference) and spread betting – apart from a grown-up name – is in detail.
Beginners ought to start with CFDs as losses are deductible and then move to spread betting once profitable. Tax applies to CFD profits but not to spread-bet accounts. Most do it the other way round.
In both the trade is an agreement rather than a purchase of a security. In other words, both are a derivative of the market. That is why they can be traded both long and short either as a stand-alone trade or as a hedge.
This sports app miss conception possibly fuels the increase across the board of margins in CFDs and spread bet trades.
Not too long ago margins were calculated at 0.5% of the potential risk, it is mostly now 1% of the risk and soon to increase to 5% of the risk.
If we take the currency pairing of Sterling versus the Dollar the market as we write is at 13,962. To spread bet this at say £10 per pip (a pip, in this case, is the final digit). The risk is 13,962 x £10 = £139,620
Probably not the same as a sports app bet! The margin required to trade at 5% is £6,981. If we consider that a suitable maximum margin of our account at any one time is not more than 10%, then we would require £69,810 to trade. Many serious retail traders trade up to four times this amount.
So, yes the margin increase ought to make many traders reconsider.