Trading Stocks Taxes

Trading Stock Market Indices Like the FTSE 100

As the economic recovery continues, many people are considering gaining greater command of their investments. This is especially true after considering the good and bad points of how the credit crunch was handled.

But what to trade, where to trade and how to trade?

It may have been around since the 1970s but people are now turning to spread trading in ever greater numbers. The speed at which you can trade, the number of trading opportunities and easy access to global markets make it worth exploring further.

Well, spread betting is not the be-all-and-end-all of trading but it has a number of useful plus points.

There is no capital gains tax, no stamp duty and no income tax on spread betting*. You are not actually buying and selling any stocks and shares or assets. You are simply speculating on the future price of the underlying financial market.

There a wide variety of spread betting markets, such as shares and stock market indices like the FTSE 100. You can also trade the currencies and commodities markets.

The FTSE 100 Index is actually one of the most popular markets.

If you decide to trade an index like the FTSE 100 then, looking at a spread betting company website, you may find a price of 5085 – 5086.

That means you could spread trade on the FTSE 100 to go above 5086 or below 5085.

For this instance, you could choose to trade £2 for every point the FTSE 100 moves up or down.

If you thought the stock market index would go up you would ‘buy the FTSE 100’.

If you bought the FTSE 100 at 5086 and the FTSE 100 index increased then the spread could become 5131 – 5132. If that were to happen, you might decide to close your FTSE 100 spread bet at 5131.

Profit/Loss = (closing price of the market – initial price of the market) x stake
Profit/Loss = (5131 – 5086) x £2 stake
Profit/Loss = £90 profit

However, if the market had decreased to, for example, 5043 – 5044 you may want to close your spread bet to limit your losses. If that happened, you would sell back at 5043.0.

So, with the same £2 per point stake:

Profit/Loss = (closing price of the market – initial price of the market) x stake
Profit/Loss = (5043 – 5086) x £2 stake
Profit/Loss = -£86 loss

As the example above highlights, there are risks. Spread bets do carry a high level of risk so you should only speculate with money you can afford to lose.

Before you trade, please ensure that spread betting matches your investment objectives, make sure you familiarise yourself with the risks involved and seek independent advice where necessary.

Of course there are other advantages to this form of trading. When the closing bell sounds, not all spread betting markets close. So whilst the London, New York and Frankfurt stock exchanges may close many important spread betting markets remain open. Some remain open throughout the night.

And of course, unlike traditional share trading, you can sell a market. Spread betting lets you trade in both directions. You can bet on markets to go down. If you think the Sterling/Dollar rate will go up you can bet on it to go up. If you think the price of Gold will go down you can bet on it to go down.

* Tax laws may vary if you live outside if the UK or Ireland and can vary from time to time.

About the Author

A leading financial author based in the heart of London’s Canary Wharf. Thomas Bainbridge is a respected commentator on the financial markets including the UK spread betting and share trading markets

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