Might be of interest to some is the UK model that has CFDs and 'Spread Betting' which are essentially the same thing but with different tax laws.
The broker IG started a gold spread betting service immediately after the Bretton Woods agreement in 1974 allowed public trading in gold (other assets came later). So rather than own actual gold punters could bet on gold price movements using a sports betting model and this all came under the gaming commission jurisdiction and so was tax free.
CFDs were created in the 1990s primarily as a means to hedge asset holdings. So asset holders could take out a low cost CFD which could cover the loss of their asset if price dropped. If the price went up as expected then the loss on the CDF could be set against the tax on the profit gain of the principle asset.
Spread Betting companies saw that SB could easily be transitioned to a CFD platform and still remain in the gaming jurisdiction. So in the UK we have Spread Betting which is non-taxable and CFD trading which is taxable though both operating on a near identical platform.
Well said, Ogee.
It's rather ironic that spread betting was invented in the US and then banned in the US. I don't know whether CFD's ever even got off the ground in the US because CFD's are banned in the US too. I'm amazed to learn that the UK imposes no tax on gambling prizes. If these instruments were legal in the US, they would generally carry a 50% prizes and awards tax liability.
Also, I formerly traded with IG US and I joined their in-house discussion forum. After seeing other overseas forum members posting about massive slippage and rejected trades, I warned them that spread betting and CFD dealers are basically casinos because they are not connected to any interbank market and hence, not connected to any greater liquidity pool. I went on to say that when a trader places an order with a spread betting or CFD dealer, a sufficient number of other traders must be participating with that specific dealer in order for that order to execute efficiently--if the number of in-house participating traders is insufficient, massive slippage and rejects result. The high intraday volatility of CFD's may appear very attractive at first, until we realize that the cause of it is low liquidity.
I should note that the aforementioned IG forum was hosted and maintained by IG UK. They obviously did not take kindly to my knowledge spreading because they immediately banned all US traders from their forum in response.Statistics: Posted by JohnnyRy — Wed May 22, 2024 1:41 am — Replies 5 — Views 304
]]>