The Lemon Fool

moorfield wrote:

hiriskpaul wrote:Unless that is you intend to run a widely diversified portfolio in a SB account, in which case your portfolio volatility would obviously reduce.

Yes that's what I have in mind. The same 15-20 shares that one might put in an HYP.

Pondering overnight whether I might simplify this idea further and build/drip feed a long position on CTY (City of London IT) instead. £60 deposit, £100 exposure, £20 (initial) margin. The biggest peak-to-trough sp fall in recent years was ~15% in 2015. No guarantees of course it won't all go badly worse in the future!

One of my rollover transactions on my FTSE 100 futures bet was wrong. Here are the correct rollovers:

Rollover        Period     P/L per point
20/12/2018   DEC-18     -613.5
20/09/2018   SEP-18     -360.5
14/06/2018   JUN-18      725
15/03/2018   MAR-18     -260.5
14/12/2017   DEC-17      197.5
14/09/2017   SEP-17      -62.5
15/06/2017   JUN-17       79
17/03/2017   MAR-17      478
16/12/2016   DEC-16      303
16/09/2016   SEP-16      828.5
16/06/2016   JUN-16     -164
17/03/2016   MAR-16      117.5
18/12/2015   DEC-15      -53
18/09/2015   SEP-15     -452
19/06/2015   JUN-15     -215.5
20/03/2015   MAR-15      567
19/12/2014   DEC-14     -338.5
19/09/2014   SEP-14       50.5
20/06/2014   JUN-14      315
21/03/2014   MAR-14       29.5
20/12/2013   DEC-13      -21.5
20/09/2013   SEP-13      492

That gives a total of profit/point of 1641, leading to a profit of 27% with 100% funding and 45% at 60% funding. So a 100% funded futures bet did underperform the return of the Vanguard ETF (31%) over the period, which is what I would expect due to the implicit funding costs in the futures contracts.

moorfield wrote:

moorfield wrote:

hiriskpaul wrote:Unless that is you intend to run a widely diversified portfolio in a SB account, in which case your portfolio volatility would obviously reduce.

Yes that's what I have in mind. The same 15-20 shares that one might put in an HYP.

Pondering overnight whether I might simplify this idea further and build/drip feed a long position on CTY (City of London IT) instead. £60 deposit, £100 exposure, £20 (initial) margin. The biggest peak-to-trough sp fall in recent years was ~15% in 2015. No guarantees of course it won't all go badly worse in the future!

The spread on CTY is about 1%, so rollovers will cost you around 4% per year. You would probably be better off running a DFB and paying daily funding if you go down that route, or use a Degiro account if the additional tax is not too big a burden.

hiriskpaul wrote:The spread on CTY is about 1%, so rollovers will cost you around 4% per year.

Thanks that's useful. Next logical step then would be to look at how an annual 4% running cost as a sb looks versus a 55% LTA charge in 30 years' time for the same exposure inside a sipp. Assuming margin/shirt is not lost in the meantime. Something to tinker with over the weekend ....

moorfield wrote:

hiriskpaul wrote:The spread on CTY is about 1%, so rollovers will cost you around 4% per year.

Thanks that's useful. Next logical step then would be to look at how an annual 4% running cost as a sb looks versus a 55% LTA charge in 30 years' time for the same exposure inside a sipp. Assuming margin/shirt is not lost in the meantime. Something to tinker with over the weekend ....

I had a look at the chart for CTY and there was around a 50% peak to trough fall during the financial crisis, so not confident in any low volatility aspect when the next crisis comes along. With 20% initial margin and 40% variation margin, a 40% market fall would wipe out your variation margin and put you on the edge of forced sale territory. Then there are the funding costs of LIBOR + 2.5%, compared with LIBOR for FTSE futures. Even with gearing, is CTY likely to beat the FTSE 100 by 2.5% per year over the long term? That sounds like a tall order and a huge leap of faith in current and future fund managers.

A long term geared investment in a geared IT that invests in geared securities, as most ordinary shares are, might be pushing your luck a little far with only 40% variation margin.

p.s. You might want to factor in that we will not be BoE of 0.75% forever. Could easily be 1.5% by the end of 2020.

p.p.s. The 55% charge on exceeding the LTA is not compulsory. You could opt for a 25% charge, then income tax on drawings. So if you only draw as a basic rate taxpayer, the total hit is 40% (100% - 75%*80%) not 55%.

Thanks hiriskpaul, as I mentioned on the OP I am flying a kite with this idea. I know we've discussed spread betting here at LF many times before so your time and opinions are appreciated. Plenty of food for thought.

A different use case, but I use spread betting as there is a software interface to the IG website (IG Labs), this allows me to do automated day trading.
This would not normally be possible as I have a full time day job.

The spread is wider, but as there are no broker fees, stamp duty or occasionally foreign exchange fees, I'd say its not too dissimilar in cost to regular share buying, and the profits are tax free.

Only additional cost is the rented Amazon server that executes and monitors trades - this costs about 5 or 6 pounds a month.
All very convenient really.

In the main, bucket shops make money when their customers lose money, hence your interests are opposed not aligned, and yet they set the rules.

So, watch out for a period of high market stress when they decide to massively raise your margin requirements and give insufficient time for you to provide additional funding (perhaps you're on holiday and cannot respond in the 48 hrs/ 24 hrs /6 hrs / 1 hr / 30 mins provided), and you're closed out at the bottom of the market, just the time when you as an investor would normally be buying/adding to positions...

Collecting pennies in front of steamrollers etc.

PLS1nve5t wrote:A different use case, but I use spread betting as there is a software interface to the IG website (IG Labs), this allows me to do automated day trading.
This would not normally be possible as I have a full time day job.

The spread is wider, but as there are no broker fees, stamp duty or occasionally foreign exchange fees, I'd say its not too dissimilar in cost to regular share buying, and the profits are tax free.

Only additional cost is the rented Amazon server that executes and monitors trades - this costs about 5 or 6 pounds a month.
All very convenient really.

That's very interesting PLS1nve5t, did you not consider using IG's ProOrder on their ProReal Time charts?

langley59 wrote:
That's very interesting PLS1nve5t, did you not consider using IG's ProOrder on their ProReal Time charts?

Thanks langley, I was not aware of that as a product, shall give it a try after next weeks holiday - need to get the most out of the free trial .