Halleynet Headspace

Well after literally years of consideration I decided to put a small fund into a spread trading account and give this a go. Why?

Well fundamentally the inital reason I looked at it again was that I was long on a number of shares I have bought over the last few years and had the pleasant  situation of needing to crystalise some gains in the 2006-7 tax year, so whenI come to do the same with more later in the year (assuming the prices on these stocks have held!) that I don’t get stung for 40% CGT.

Someone mentioned to me that while I sold some shares I had made some nice profits on, and with the belief that these share still have some way to run, that I could take out a long position on the spread markets to stay in while my money was out. (for the uninitiated if you sell shares at a profit and then buy back in again within 30 days this is classed as bed and breakfasting- so for CGT purposes its like you never sold them at all and you pay tax based on the original purchase price). So though I wanted to keep these shares I wanted to realise the profits.

What I wanted then to do was take up an equivalent long position on the spreads market which would not have any tax impact- as the position is notional in shares terms.

For example lets imagine I held 13000 shares in some equity at a price of 95p/share- so selling nets be a total sum of 95p x 13000= £12350. I could then open an equivelent position in the spreads market  based on the same number of shares. When you buy or sell on spreads its  based on points- in shares 1 point is 1 penny. So the a £1/point trade is the same as having the exposure to the movement of 100 shares. £1= 100pence.

So to hold a position of 13000 shares I need a £130 / point position.  Is this not risky well no more risky than holding the same shares, if the shares had dropped 2 pence on a day while I held them- I had notionally lost 2p x 13000= £260. The “loss” was notional because as long as I hold the asset (the shares) there is no financial impact. The difference in spreads is that the difference is real- there is no asset. So on the same day with a £130 point position I would have “lost” £260. This is real money though again could be considered notional in a short term sense because as far as the spread trading firm is concerned- my position is open until I choose to close it- but you need to have th emoney available to fund the loss! In otherwords if I did not have this money in my account they would call me up and ask me for it to be deposited. if you don’t deposit in due time your exposure is closed and you need to pay up. This is called a margin call.

Also due to liquidity factors and risk the amount you need on account to open such a positon requires a deposit of a set amount – in my case it was 30% of the value of the actual shares- in otherwords about £4000.

So did I do it. Well I opened the account, but it took so long and I had so many problems along the way- bank errors etc that the share I wanted to keep exposure to moved ahead considerably (ouch ! so I missed out on a nice fat gain on my holdings) AND in the spreads market. What now? Well I have dipped in and out the shares again in an ISA (again a tax free location) and have started trading the FTSE100 on spreads. Its been a roller coaster ride in only my first week but so far I have made a modest gain on my starting capital- I have also seen my first losses so don’t think its a one way street!

Share tips- well I don’t really make tips but if you want to know what I am currently holding heres my current list:

Vodafone
Ascent Resources
Kenmare Resources
France Telecom
Centamin Gold
Mercator Gold
African Eagle
Glencar Mining

And Watching

Jubilee Platinum
Barclays Bank
Royal Bank of Scotland
Chaco Resources
Gold Oil
HMV

And on spreads keeping a close eye on the spot Gold price, FTSE100 and DJIA. I am trading the FTSE pretty well daily, its been on a steady up and while I maintain a medium term view it will see 7000 before the year end its current rush seems to me a bit over bought and I will be shorting where possible.

Stay lucky- will post more on this next week.

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