How Are Traders Benefiting from Spread Betting Activity?
What is Driving Economic Data in the UK and the US?
UK tax laws dictate that profits generated from spread betting activity are exempt from what is known as capital gains tax. Additionally, CFD trades and spread betting activity are both exempt from UK stamp duties. This means that traders who are able to generate substantial profits from spread betting are also able to save money with this type of trading activity. Spread betting makes it possible for UK and European traders to take a long or a short position on tradable assets. This means that you can profit from rising or falling markets at will. For example, the upcoming June 23 referendum in the UK (The Brexit Referendum) may have a greater likelihood of a no vote, thereby convincing traders to go short on this option and sell it. It should be remembered that capital gains tax is typically levied at 18%, and there is zero income tax levied on dividends with spread betting. Recall that high net worth individuals who trade can pay as much as 50% income tax on dividends.
Zero Tax, Zero Commission on Spread Betting?
If on the other hand public opinion appears to be in favour of a Brexit, traders would go long on the option and buy it. Much the same is true with all types of tradable assets including currency pairs, indices, commodities and stocks. For example, the GBP/USD currency pair has been enduring a tumultuous time of late owing to increased anxiety in the markets. Presently, the currency pair is trading at 1.42384 to the US dollar. Traders who believe that the GBP will strengthen further against the greenback would go long on the pair and place call options on it. Those who have a bearish perspective on the GBP/USD currency pair would go short on it and place put options accordingly. Incidentally, this currency pair was recently trading according to sentiment rather than the numbers, but that’s all about to change given the upcoming slew of economic data scheduled for release in the US. When spread betting, it is important to remember that it is tax-free insofar as it is not your primary source of income. It is always wise to dabble in spread betting while you are gainfully employed in another job – that way you pay zero tax, commission or related costs on your profits.
April is a particularly important time for Wall Street traders. It marks the beginning of Q2 2016 and it is also the time when corporate America releases its Q1 2016 earnings reports. Already we know that the performance of the finance sector is markedly lower (experts forecast between 6% – 10% declines) as economic weakness, slack demand and the virtual collapse of emerging market economies reverberates through the global economy. Financial institutions such as Bank of America, Morgan Stanley, Goldman and scores of others will be releasing what is likely to be lacklustre performance figures for Q1 2016. Depending on the consensus forecast among analysts, declines are expected to be widespread.
Q1 earnings reports are one of the many reasons why equities markets have been trading in a rather tight range of late, with concerns that any potential breakouts may be dragged to the downside as earnings reports become known. There is also the other issue of interest rate hikes in the US, with the federal funds rate expected to rise by at least 25-basis points by June 2016 ceteris paribus. The US is expected to initiate at least 2 rate hikes in 2016, a sharp downward revision from the anticipated 4 rate hikes at the start of the year. It should be remembered though that any losses accrued through spread betting activity cannot be offset against other incomes. Therefore, traders are advised to practice due diligence when making spread betting decisions with real money trading.