Advantage of Stocks & Shares ISA over Spread Betting?

[Mellow Matt]

If, for example, one wanted to make an investment that tracked the FTSE100, what is the advantage, if any, of using a stocks and shares ISA over using a spread betting account?

I don't know much about stocks & shares ISAs, so please correct me if I'm wrong, but I can't really see the advantage of the ISA? With spread betting you don't need to put down as much money for the same exposure, so you can put the money you would otherwise have used into a different investment. You will have to pay a spread, but there are no fees and no tax, so are there advantages of a S&S ISA that I'm missing in this scenario?

TIA

(P.S. I'm aware of the risks of leverage, so don't worry about that!)

[limpsfield]

It's the financing costs - spread betting is ideal for 3-4 months or less. You can hold for a year or more if you want of course but if you held for a year and the market went nowhere, you would still incur around 3-4% in financing due to the leverage aspect.

[Mellow Matt]

If you trade the futures there won't be any financing costs though. Also, if you did have to pay financing, you only have to put down, say, 1% of the value of the investment, you can put the other 99% in a cash ISA or something and make 3%, which would pay for the financing & a bit more...?

[Condi]

Much easier to ride out the peaks and troughs with an ISA than spread betting surely?

Im not sure what tick size you would use, but at £10 a tick it doesnt take long to have a margin call if the market moves against you and then your crystallizing your losses rather than making a choice about when to cash out.

[limpsfield]

Mellow Matt said:

If you trade the futures there won't be any financing costs though. Also, if you did have to pay financing, you only have to put down, say, 1% of the value of the investment, you can put the other 99% in a cash ISA or something and make 3%, which would pay for the financing & a bit more...?

The financing is priced into the futures - so you don't see a daily debit, but it's still there. But you are right that if you wanted to e.g. buy a £10k FTSE tracker, with a leveraged product you could put down 1-2% whatever and put the other money on deposit somewhere.

[Mankers]

Another advantage of spread or cfd trading is that you can short.

[Mellow Matt]

limpsfield said:

The financing is priced into the futures - so you don't see a daily debit, but it's still there. But you are right that if you wanted to e.g. buy a £10k FTSE tracker, with a leveraged product you could put down 1-2% whatever and put the other money on deposit somewhere.

Good point!

All in all though, it still seems spread betting is a more useful/rewarding way of investing in my proposed scenario.

[fid]

Mellow Matt said:

If you trade the futures there won't be any financing costs though. Also, if you did have to pay financing, you only have to put down, say, 1% of the value of the investment, you can put the other 99% in a cash ISA or something and make 3%, which would pay for the financing & a bit more...?

Not confident enough to put 100% down eh?

[R11ysf]

Mellow Matt said:

All in all though, it still seems spread betting is a more useful/rewarding way of investing in my proposed scenario.

You also aren't taking into account any dividends and also perpetuity.

In a market that goes nowhere you will have paid 3-5% finance and got back less than 2% cash deposit. However, stocks and shares ISA you will have got the dividend tax free so would be up. In a market that goes down, even a tiny bit, your leverage will wipe you out and it isn't comparable. If you think the market is definitely going up and quickly, then nothing beats the leverage and ease of spread betting.

Also, ISA's are every year, year on year. So after 10 years of making maximum deposits you have 150k ish of money to invest and take dividends on tax free.

Just noticed you are a CFD dealer Matt. Talking your own book at all

[limpsfield]

You do still get the divis - whether from the index or individual shares - with spread betting.

It's the leverage that ends up doing the most damage, when people think there is a sure thing can't lose opportunity.

But used sensibly, great product.

(I am also talking my own book)