The word gambling is defined by one dictionary as:. With the possible exception of those who invest in companies for the sake of the company itself, and leave their money with that company, the definition adequately covers most trading activity. Understanding that it is not the product that carries inherently more or less risk but the person and mindset using that product would help not only the individual consumer but also the industry, the legislators and the regulators.
In the HoL ruled that local authority interest rate swaps were illegal. Their lordships ruled in this way not because the swaps were used as hedging instruments but because they were used illegally in this particular instance. The reality was that it was the performance of the councillors that was at fault and not the financial products or the concept of hedging.
Covering risk on behalf of the rates-payers seems an eminently sensible activity. The real issue that led to such a poor ruling by their lordships was that the process smacked of gambling in the traditional usage of word and was, therefore, considered as being overly risky. Almost any transaction can be adjusted to suit the particular risk characteristics of the individual consumer.
And, in fact, products can start with one intention and are utilised for another. Indeed, financial derivatives originally appeared in the early s as a counter to the volatility introduced into the markets by the breakdown of the Bretton Woods system of fixed exchange rates. Another example is the development of credit derivatives that were originally intended to reduce the risk and exposure of organisational finances by building in stability and predictability and consequently insuring against volatility.
However, gamblers immediately recognised that you did not actually need to own a commodity in order to be able to trade its derivatives, you could very simply bet on how the market would move. Thus a product designed to increase stability could be used in a manner that would actually act as a volatility force multiplier.
One of the JP Morgan team that originally developed the credit derivative remarked, when asked how she got into the business, "I had read Liar's Poker and thought that trading derivatives sounded sexy and fun". That's gambler-speak. Historically, financial institutions had an advantage over individual traders. The institutional traders had instant access to international markets, commodities and currencies from their desks in the City.
They could balance a multitude of risks and grasp opportunities not easily available to individual investors or even to their brokers. Perceived economic threats from abroad, such as the rise of the Japanese economy, posed less of a problem for institutions because they could easily diversify into foreign stock markets.
Similarly, the gathering competition from emerging economies today has provided a similar opportunity, rather than a threat. Because of this lack of individual access the impact of geopolitics on oil, gold and other commodities threatened the lone investor, while for the banks it provided opportunities which were available at the end of a phone or, more recently, a mouse click. The cutting edge of globalisation and technology gave banks easier access to very traditional financial products.
Ironically, despite all the new technology, the instruments used by the banks were the same familiar products. Assets such as commodities or entire national stock markets were traded through old-fashioned futures contracts. A futures contract being an agreement where parties agree a price for something now and then exchange the goods at an agreed fixed future date. A futures contract is the simplest form of a derivative product, a security where the price is derived from the price of something else.
The earliest examples of futures contracts date back 3, years to Babylonian farmers' sales of grain. The farmer and his client could manage their risks because they knew in advance what their cash-flows would be. Both parties could calmly plan ahead, safe in the knowledge that the price they agreed many months before would be adhered to. Unforeseen events such as price slumps from bumper harvests or profiteering during droughts could be avoided.
Rather than the individual deals of the ancient world, modern futures contracts are usually traded on exchanges. However, this particular aspect of modernity probably started back in Japan in the s. A market developed there to redistribute spread the risk related to the production and distribution of rice. By the mids the Dojima and Sakata rice exchanges were so important that songs were composed about the rice market.
Leading figures from the exchanges were even granted the honorary title of Samurai to become financial consultants to the government. During the initial 3, year period of futures contracts every contract tended to be different. Each contract would be based on the amount of grain that a specific farmer was selling to their customer. They decided to standardise their contracts' quality, quantity, delivery times and location - price was, therefore, determined by market forces within the exchange.
Each contract is for the same physical amount of grain and you would trade as many contracts as required. Rather than a bespoke 50, bushel wheat contract to be delivered in September, the executed trade would be for ten September wheat contracts.
Prior to this standardisation, it was difficult to compare deals. By making pricing more transparent traders are able to see clearly what the market price is for the wheat that will be delivered in September. By the late s the exchanges began offering futures contracts on non-agricultural commodities. For the first time there was a market for trading gold and silver futures - the right to receive or deliver the metals at a later date. Over the last century exchange trading in futures contracts has extended to many of the commodities we take for granted in our daily lives.
Corn, soyabeans, cattle, pork, cocoa, sugar, coffee, copper and platinum, to name but a few. Trading in futures also dominates how we view the energy markets. The oil and natural gas prices we read about in the news are determined by trading in the energy futures markets of London and New York. Nearly every primary raw material that we consume is traded as a futures contract. The risk management tools initially used by farmers were so simple they were applied to other markets.
It was realised that the commodity itself is actually irrelevant, it is unimportant as to whether the underlying asset is wheat, cattle or gold. It was only a matter of time before the simplicity of futures would lead to a whole new breed of financial products for banks and investment funds - traded financial derivatives.
In the Bretton Woods system of pegging international currencies to each other, based on gold, collapsed. Currencies were left to "float" in the market and became a risk or investment like any other. Exchange traded futures contracts on financial instruments had not existed prior to this - the genie was out of the bottle.
Only the imagination restricted what could be traded in this way. Over the next decade several important futures contracts were launched by the Chicago exchanges. Whilst agricultural futures contracts tend to be settled with the delivery of the wheat or cocoa, for example, most financial futures are settled in cash. This way the buyer of a profitable Standard and Poors index contract does not wait for receipt of the stocks at the agreed price when the contract expires.
Instead the seller would hand over the buyer's profit in cash, had the buyer sold all the stocks instantly at the higher market price. The parties square up the difference in value since the deal was struck, rather than handing over the securities on the settlement date. Hence the umbrella terminology for swaps and futures as 'Contracts for Difference'.
Without cash settlement the buyer would have to await the transfer of the stocks to his account at the agreed price so as to sell them for a profit in the market. The American markets were not alone in embracing financial futures. Competition between the international futures exchanges has led to futures contracts on wide range of financial products since the s.
Between them they compete to cover short and long term government bonds from the United States, Japan, the Eurozone and Britain. Single stock futures exist for most of popular shares in Britain and the continent and there are even futures contracts on macroeconomic production, inflation and GDP. The simple idea behind futures contracts is so useful that they are now used in a spectacular number of areas. For example, the growth in global trade has increased the volatility in the shipping markets.
Units of freight space on the ships are traded, allowing manufacturers and shipping firms to manage risks from fluctuations in the market. Futures contracts are also traded on the right to buy or sell the ships themselves at a future date.
The industrialisation that fuels this trade also drives pollution fears and international regulation of emissions from companies. Now companies can trade their emissions quotas. The increasingly volatile weather of recent years has become an increased risk to companies.
As a consequence those companies are increasingly turning to futures contracts on rainfall, snowfall, frost and the temperature. Weather risks are important to any companies for whom rapid seasonal turnaround is crucial to margins such as re-insurers, soft drinks companies, energy companies and even fashion retailers. Even rubbish has value and there are now growing futures exchanges dedicated to trading recyclables such as paper and plastics.
The nineteenth century grain farmers would be amazed at how accepted derivatives have become. The number of markets and asset classes they now cover are impressive and their commercial usage is commonplace. Everyday corporations use them to manage the risks affecting their businesses, such as foreign exchange or interest rate risks.
Of these , the 35 British companies all make use of derivatives. Innovation is, of course, never-ending and did not stop when applying futures contracts to new markets and assets. The banks have developed more complicated "exotic" derivatives from plain vanilla derivatives such as futures contracts. These non-standard contracts serve the specific needs of a bank or large company to shift risk and plan for the future.
The banks employ quantitative analysts to design and price these products - the "rocket scientists" of the finance world. The value of an exotic derivative could be based on any number of conditions and often using more than one underlying asset, perhaps a mix or basket of stocks or commodities. It is perhaps clear or unclear from this example why these are described as exotic contracts. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result.
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Careers Marketing partnership. Inbox Community Academy Help. Log in Create live account. Related search: Market Data. Market Data Type of market. Analyse and learn Strategy and planning Spread betting vs options: what are the key differences? Spread betting vs options: what are the key differences? There are a range of differences between spread bets and options, such as: Expiry date Asset classes Ownership of assets Medium of exchange Trade sizes.
Spread bets Options Is there an expiry date? Yes Yes What asset classes can I trade? Commodities, shares, ETFs, indices, forex, options, futures, bonds and more Forex, shares, indices and commodities Will I take ownership of the asset? Over the counter Exchanged traded or over the counter Are the trade sizes flexible? Yes, you can choose your bet size as long as it meets our minimum requirements No, all options contracts are standardised into lots.
Expiry date Spread bets and options both have expiry dates, up until which point the position can be closed and profit or loss realised. Asset classes Options contracts can cover a range of assets. Ownership of assets At the point of settlement, options contracts can either be settled or rolled over. Trade sizes Options trade in lots, which represent the number of underlying assets a contract covers. Similarities between options and spread betting There are also plenty of similarities between options and spread bets too.
While leverage can magnify profits, it can also magnify your losses, making it important to have a risk management strategy in place. Ready to start spread betting? Open an account with us today Options trading basics An options contract is an agreement that gives the holder the right, but not the obligation, to exchange an asset at a set price — called the strike price — on a set date of expiry. Learn more about options trading with us For example, if you thought the price of FTSE options will rise, you could open a long spread bet position with an expiry date for the end of the month.
Want to start trading options? Create an account with us Pros and cons of spread betting Pros of spread betting There are a range of benefits to spread betting. Pros and cons of options trading Pros of options trading There are plenty of reasons options trading is so popular. Spread betting vs options summed up Spread bets and options are both popular derivative products Both products have set expiry dates, which can cover different time frames You can trade commodity, stock index, currency and interest rate options or spread bets on the price of stocks, indices, commodities, currencies, options, bonds and futures When trading options, you can settle with the physical delivery of the asset or in cash.
Footnotes 1 Tax laws are subject to change and depend on individual circumstances. Try IG Academy. Related articles in. What financial instruments can I use for hedging? Spread betting for beginners: a step-by-step guide. Bitcoin: Is a price correction looming in ? Live prices on most popular markets. See more shares live prices. See more indices live prices. First name. Last name. Email address. You might be interested in….
How much does trading cost?
They didn't like being picked off in their pools by faster players. Their main way of curbing you in the old days was to give you very limited credit so you couldn't really trade and make any sizeable bank. The pools both got better at tech and were also threatened by the slow realisation their behaviour was anti-competitive and challengeable.
So the credit squeeze eased. One way to give themselves an edge was to add a delay so the bank could decide if they would accept your trade or bin it. This was last-look. They held your order for a while and if it was a loser for the bank, they'd frown and disown it. Unfortunately, it is worse than it seems. Many house traders ran their books more aggressively. With the beneficial hindsight of last-look, there was a tendency to avoid even fair orders and to only accept orders that ran in favour of the house and against the client.
The strive for profit maximisation led to the occasional thread of perverse client exploitation. Remember the other features though, even if last-look was fair it still introduces some inefficiency by limiting the ability to hedge, replenish, and otherwise manage your risk efficiently.
This matters more to some than others but no one likes being taken advantage of. Last-look has a deserved bad name. I despise their speed-bump as it is not symmetric, fair, nor simple. It is just a dumb construct, not all of which was IEX's intention but largely so. You can read about it here in Speed-bump The most troubling thing is how IEX misrepresent their flawed system and poor execution outcomes.
Bad SEC. Bad regulator. However, IEX had a different intention at the outset that wasn't so bad. What IEX isn't click to enlarge It was kind of meant to look something like the above picture. It doesn't as it leaks information and has an uneven and unfair lack of colocation, but let's ignore that for now. A closer approximation of IEX click to enlarge The intention from IEX was that the speed-bump would be symmetric and allow them to set a fair price, e.
A kind of dark order. The speed-bump delay allows them to consume all the incoming market data information and look into the future, albeit a short lookahead, and devise an algorithm to decide on the matching price. There are a few problems I find with this. I like IEX less as it is darker. It is mainly dark. This parasitic behaviour detracts from the price discovery process that should be the role of such privileged markets. Secondly, the delayed lit quotes you see in the market data feed are like a hall of mirrors.
They might not really be there by the time your order winds the long and windy cable, literally long and windy from the spool of wound fibre. Them there fake quotes are disturbing the force. Quotes should be actionable. The other thing IEX prevents is fair innovation.
Its lame dark order types and bogus logistic regression based crumbling quote indicator prevent brokers or other participants rolling their own algorithms. I have written about how IEX's innovation kills innovation. Prevention of innovation is something you'd hope a regulator would raise an eyebrow to. The speed-bump protects IEX as it is the only one that can see into the future in its internal world. IEX gets worse the closer you look at it.
It has separate issues as a speed-bumped lit exchange beyond being a slow and inefficient exchange with high fees, such as auto fading, but meanderers know that already. The asymmetric speed-bump: the last-look-a-like demon TSX Alpha is quite a big turkey. It offers an asymmetric speed-bump. I think of it as arse-emmetric. It smells that bad.
It is kind of a last look where a delay, randomised to milliseconds, exists on the aggressive order allowing the price posting order, the resting or passive order, time to get out of the way. This is not quite last-look but it has some similar features.
On such an asymmetric speed-bump a resting order can get out of the way if its master thinks the market is now adverse. It's not the same as last-look as you don't actually know if an order could be headed your way, but it is similar in that you may just decide to always fade if the market is not in your favour near the end of your bump time.
That's quite an abuse. You get the same house of mirrors effect as a symmetric bump where visible quote may not be tradeable. The asymmetry has the benefit where the posting price process, market making, is derisked so participants may quote larger and tighter as they can duck and weave without committing. It looks better but it is not. It's smoke and mirrors. It's not as simple as that as losing queue priority is still a thing, but you get the idea: fake prices are bad.
Regulators have been hoodwinked into allowing asymmetric speed bumps. One consolation for such asymmetry is that it isn't as dumb as the Aquis Exchange's post only if you are a prop biz model. There is a curious reliance on external players in such a place.
At least the SEC realised the danger of that model in the US and is unlikely to countenance such a beast. Is this so new? They had other ways and means. They didn't have to. There were other ways of parting customers from their money, even when they guessed right.
The business was tremendously profitable. When it was conducted legitimately I mean straight, as far as the bucket shop went the fluctuations took care of the shoestring" The modern equivalent would be the highly levered account at a spread betting or CFD shop. Nevertheless, our protagonist found his own problems when his visible tape and true market were out of synchronisation by delay, "The ticker beat me by lagging so far behind the market. I was accustomed to regarding the tape as the best little friend I had because I bet according to what it told me.
But this time the tape double-crossed me. The divergence between the printed and the actual prices undid me. It was the sublimation of my previous unsuccess, the selfsame thing that had beaten me before. It seems so obvious now that tape reading is not enough, irrespective of the brokers' execution, that I wonder why I didn't then see both my trouble and the remedy for it.
Delays are a killer for many a seemingly reasonable strategy. I suspect a fresher finance community may be arguing about similar features in another hundred years. Are speed bumps really all bad? What about a 1-microsecond speed bump? Reiterating: the idea of delayed darkness is not altogether bad. I just don't like the concept of parasitic darkness being encouraged in public exchanges.
Let them go hang out at an ATS or broker's shop. Keep public markets, open, fair, and efficient. We should be encouraging open and fair public price discovery. I used to worry more about overly complex order types rather than the pegs, hiddens, and icebergs. That was until IEX came along with its perverse, leaky, innovation killing, speed-bump with high fees and misleading snake oil salesmen.
The true nature of the dark side of this dark fader makes IEX's flawed model a priority concern when considering the health of public markets. One of the great levellers of the playing field was the widespread adoption of colocation facilities along with the equalisation of cable lengths. This ensured fairness in the exchange data centre. It is also a kind of speed-bump as the cable lengths are typically not de minimus. A couple of microsecond asymmetric speed-bump may be seen as a fair technology field as typical variation in 10GbE hardware stacks is microseconds.
That is a slippery slope though and quite the contextual evaluation as competitiveness with FPGAs is now down to single-digit nanoseconds. It is a bit of an easier argument than hundreds of microseconds. Hundreds of microseconds just make an exchange a poor inefficient clunker.
So, I'm arguing speed bumps may have a place. Really big ones for tomorrow's parasitic match seem fair fare for a dark place. Keep the ones in between out of the public markets, please. There are other ways exchanges could approach making venues fair. Inverting IEX's approach by bringing the outside in, instead of keeping it out, via customer provisioning of consolidated external feeds may be a better way to spend an IEX sized investment and even things up.
Another interesting way may be making an entire region, or planet, a fair co-lo equivalent with timed protected gateways, perhaps even in a customers premise. Also, distributing news, such as SEC Edgar reports, by co-ordinated in co-lo release would be an admirable and inexpensive fairness measure that would make a few RF networks redundant. The SEC should get on that. We are far from exhausting the exhausting fairness debate. Back in , as a two-year-old, I apparently watched Mr Armstrong take a small step for a sheila or bloke on a dusty rock around Megametres from our pale blue dot.
The video was frequency modulated and telemetry was phase modulated on the subcarriers: "The solution was called Unified S-band or USB. It combined tracking, ranging, command, voice and television data into a single antenna. Voice and biomedical data were transmitted on a 1. In short, every type of information traveling between the ground and a Moon-bound spacecraft had its place. Except for the television broadcast. To free up space for a television downlink from the lunar module, NASA removed the ranging code and changed the modulation from phase to frequency.
This freed up kHz of bandwidth for a television downlink on the USB signal. The problem was that this wasn't enough bandwidth for the standard video camera of the day that transmitted scan lines of data at 30 frames per second at 5 MHz. Instead, NASA would need a slow-scan camera optimized for a smaller format, scan lines of data at 10 frames per second that could be transmitted at just kHz.
The world watched. Little Aussie movie, "The Dish". Saturday, 2 March IEX, the alternative fact exchange, celebrates seven years. Perhaps best to skip this meander. Repetitive with de minimus news value. It's just an update with IEX's February stats. February results show a little under 2. The parasitic darkness at IEX grew a little in February as lit trading regressed somewhat.
Treat your customers better. Don't succumb to IEX's spin. Friday, 22 February IEX - the cable guy. IEX improperly represents technology costs at other exchanges. Far from being the fairest girl in Mordor, IEX is the evil one plumbing the darkest depths looking to give you an unpleasant burn around an unmentionable ring. Ramble on. Stock Market". I always enjoy seeing a bit of market stupidity either in the press, paper, or policy. It reminds me. Friday, 8 February Random meandering catch-up.
I doubt ITG was going to hit the plan numbers Mr Troise was espousing on each earnings call, so now they don't have to. It's good for most ITG customers as Virtu is an impressive outfit. They have much better tech than ITG which may help you'd hope.
It's bad for ITG staff as their payroll has been bloated for years. Virtu is an aggressively lean organisation, as KCG staffers will attest to, so perhaps only a quarter of staff are really needed? How deep to cut? Losing some ultrasensitive agency-only clients would then be much more palatable with a lower cost base. The firewall between the prop biz and the broking should be safer with Virtu. In the old daze of ITG they just lied to their customers about their own trading and pretended it was an agency only business.
I wrote about this a few years ago, " ITG continues to deceive customers. ITG and their shareholders may have actually dodged a bullet. ITG prop traded for many years and lied to their customers about being agency only brokers.
If the SEC had been wiser and a slightly more adept regulator they would have disgorged those tens of millions and put a juicy fine in their pocket too. They did some exceptional work in the early daze. It aged. ITG became clunky.
Their tech didn't work so well, but many of the buy-side remained. Sticky clients. Sub-standard tech and ridden by scandals. People were all too attached to their Triton terminals. Virtu is buying those sticky clients. Some clients may run away, but they shouldn't.
Virtu is sharper and should provide a better future. Many possible acquirers have run the ruler over ITG for many years. I've talked to a few. The danger of catching a falling knife has kept many away. It will be a leap for the buy-side to trust an HFT. The truth of the matter is different.
New customers may actually find a reason to call on the embedded ITG again. That would be a change to just sticking around. I suspect a win for Virtu. Mr Don Wilson scored a big win when US District Judge Sullivan wrote, " It is not illegal to be smarter than your counterparties in a swap transaction. The judge had a new job confirmed by the Senate so he had to clear the decks of what he could.
The CFTC does so much good work and then let some legal eagle's ego run away and allow a train wreck such as this. Even with such an obvious case, DRW had to risk much to litigate this to the mat. Good on them for not folding and holding the CFTC to account. There was a change in legal personnel at the CFTC. Heads should have rolled and they did.
I doubt Mr Wilson got the apology he deserved. Volatility is your friend Around December there was much talk of computers exacerbating volatility on the downside. Very little talk about algorithms with upside volatility. That is the press norm. What many people miss is that better information and models should lead to a more aggressive view of valuation from a bottom-up perspective.
Think of the sum of discounted cash flows point of view. Share price should be very sensitive to initial conditions, i. We had the crazy volatility doldrums where any dope could make money selling vol until February Then we start blaming algorithms and computers. The real story may just be that we are getting better at working out value. Thus prices incorporate information more efficiently. Sharper price changes result. That is, efficiency may just be volatility.
Welcome to the new world. I'm not convinced but it is interesting. I suspect noisy crap is just noisy crap. Signal is hard to diagnose. Arista bought Metamako I had a few beers with Charles and Scott after they baled with the sale back in September last year. Scott had just bought a new toy. Dave Snowdon and the rest of the team stayed on to play with their new Arista toys and teammates. This is significant in the HFT world as most profitable firms use their equipment. The newly named Arista is the go-to device for layer one.
It is a good deal for Arista. They get back to their financial service roots. I remember meeting Andy Bechtolsheim at the Roosevelt in NY many moons ago when Arista had a simple trestle table and a few pamphlets. I felt giddy shaking his hand. Geek I am. It was the fastest switch at the time with Fulcrum's asynchronous wonder chip. Arista did well. They started by displacing Cisco with fast Fulcrum based switches that only did layer two.
It was a while before Arista got to layer 3. Now they are getting into big iron routing which looks more like a huge switch in the 21st century. Metamako displaced some Arista gear from financial services with clever layer one and some faster layer two, borrowing from the same Arista playbook. The same plot worked well with new actors. The Metamako deal opens some doors for Arista.
Metamako's plans have a great enabler in Arista with their super-sized resources. The tango looks sweet. I suspect a happy ending. The so-called Tobin tax is intended to put a penalty on short-term financial round-trip excursions into another currency. Tobin suggested his currency transaction tax in in his Janeway Lectures at Princeton, shortly after the Bretton Woods system effectively ended.
If this money is suddenly withdrawn, countries have to drastically increase interest rates for their currency to still be attractive. But high interest is often disastrous for a national economy, as the nineties' crises in Mexico, South East Asia and Russia have proven It is intended to put a penalty on short-term financial round-trip excursions into another currency.
First, it is virtually impossible to distinguish between normal liquidity trading and speculative noise trading. If the tax is generally applied at high rates, it will severely impair financial operations and create international liquidity problems, especially if derivatives are taxed as well. It has a two-tier rate structure consisting of a low rate financial transactions tax and an exchange surcharge at prohibitive rates.
On 19 September , retired speculator George Soros put forward a proposal, issuing special drawing rights SDR that the rich countries would pledge for providing international assistance and the alleviation of poverty and other approved objectives.
According to Soros this could make a substantial amount of money available almost immediately. This is slightly less than 0. All it needs is the approval of the United States Congress. If the scheme is successfully tested, it could be followed by an annual issue of SDRs and the amounts could be scaled up "so that they could have a meaningful impact on many of our most pressing social issues".
Between and Australia charged a bank account debits tax on customer withdrawals from bank accounts with a cheque facility. Some Latin American countries also experimented with taxes levied on bank transactions. Argentina introduced a bank transaction tax in before it was abolished in Brazil implemented its temporary "CPMF" in , which lasted until It often applies to deposits and withdrawals from bank accounts, often including checking accounts.
In , Edgar L. Feige proposed the synthesis and extension of the ideas of Keynes and Tobin by proposing a flat-rate tax on all transactions. Since financial transactions in stocks, bonds, international currency transactions, and derivatives comprise most of the automated payment transaction APT tax base, it is in essence the broadest of financial transaction taxes. Initially proposed as a revenue-neutral replacement for the entire Federal tax system of the United States,  it could alternatively be considered as a global tax whose revenues could be used by national governments to reduce existing income, corporate and VAT tax rates as well as reducing existing sovereign debt burdens.
If adopted by all of the developed nations, it would have the advantage of eliminating all incentives for substitution between financial assets and between financial centers since all transactions would universally be taxed at the identical flat tax rate.
The foundations of the APT tax proposal—a small, uniform tax on all economic transactions—involve simplification, base broadening, reductions in marginal tax rates, the elimination of tax and information returns, and the automatic collection of tax revenues at the payment source. The Belgium securities tax applies to certain transactions concluded or executed in Belgium through a professional intermediary, to the extent that they relate to public funds, irrespective of their Belgian or foreign origin.
The "tax on stock exchange transactions" is not due upon subscription of new securities primary market transactions. Both buyers and sellers are subject to tax. The tax rate varies following the type of transactions. Transactions made for its own account by non-resident taxpayers and by some financial institutions, such as banks, insurance companies, organizations for financing pensions OFPs , or collective investment are exempted from the tax.
In Colombia introduced a financial transaction tax of 0. Currently the rate is 0. Finland imposes a tax of 1. However, there are several exceptions. For E. For example, British banks opposed the tax. Supporters said: "We are delighted that the European FTT is moving from rhetoric to reality and will ensure banks pay for the damage they have caused; This shows it is possible to put the needs of the public over the profits of a privileged few.
It's unforgivable in this age of austerity that the UK government is turning down billions in additional revenue to protect the City's elite. Two other taxes applicable to financial transactions were also introduced, including a tax on high-frequency trading , Article ter ZD bis of the FTC ; and a tax on naked sovereign credit default swaps Article ter ZD ter of the FTC.
The FTT levies a 0. The scheme does not include debt securities, except convertible and exchangeable bonds, which are included but benefit from a dedicated exemption to the FTT. Listed shares acquired as of 1 January will no longer be subject to the sales tax; rather, any capital gains received will be added to the taxpayer's total income.
Capital gains taxes such as Greece's are generally not considered financial transaction taxes. As of , the rate on buy and sell transactions made through a recognized national stock exchange is 0. Other rates apply to derivatives transactions; for example, for sale of options on securities, the rate is 0. Since 1 March , Italy levies financial transaction tax on qualified equity transactions of up to 0.
Until , Japan imposed a transaction tax on a variety of financial instruments, including debt instruments and equity instruments, but at differential rates. The tax rates were higher on equities than on debentures and bonds. The tax was eventually withdrawn as part of the "big bang" liberalization of the financial sector in In the Peruvian government introduced a 0. The tax is to be assessed automatically but collected manually.
The tax applies to transactions, which are performed in Poland or which grant property rights that are to be exercised in Poland. It also applies to transactions executed outside Poland if the buyer is established in Poland. All transactions on a stock market, Polish treasury bonds and Polish treasury bills, bills issued by the National Bank, and some other specified securities are exempted from the tax.
Singapore charges a 0. Stamp duty is not levied on derivative instruments. In January , Sweden introduced a 0. In July , the rate was doubled, and in January , a considerably lower tax of 0. On a bond with a maturity of five years or more, the tax was 0. Analyst Marion G. Wrobel prepared a paper for the Canadian Government in June , examining the international experience with financial transaction taxes, and paying particular attention to the Swedish experience.
The revenues from taxes were disappointing; for example, revenues from the tax on fixed-income securities were initially expected to amount to 1, million Swedish kronor per year. They did not amount to more than 80 million Swedish kronor in any year and the average was closer to 50 million. On the day that the tax was announced, share prices fell by 2. But there was leakage of information before the announcement, which might explain the 5.
These declines were in line with the capitalized value of future tax payments resulting from expected trades. It was further felt that the taxes on fixed-income securities only served to increase the cost of government borrowing, providing another argument against the tax. Even though the tax on fixed-income securities was much lower than that on equities, the impact on market trading was much more dramatic. On 15 April , the tax on fixed-income securities was abolished.
In January the rates on the remaining taxes were cut in half and by the end of the year, they were abolished completely. Once the taxes were eliminated, trading volumes returned and grew substantially in the s. The Swedish FTT is widely considered a failure by design since traders could easily avoid the tax by using foreign broker services. In Switzerland, a transfer tax Umsatzabgabe is levied on the transfer of domestic or foreign securities such as bonds and shares, where one of the parties or intermediaries is a Swiss security broker.
Other securities such as options futures, etc. Swiss brokers include banks and bank-linked financial institutions. The duty is levied at a rate of 0. However, there are numerous exemptions to the Swiss transfer tax. These are among others: Eurobonds, other bonds denominated in a foreign currency, and the trading stock of professional security brokers. The revenue of the Swiss transfer tax was CHF 1.
In Taiwan, the securities transaction tax STT is imposed upon the gross sales price of securities transferred and at a rate of 0. The Taiwanese government argued this "would enliven the bond market and enhance the international competitiveness of Taiwan's enterprises. Since , Taiwan also levies a stock index futures transaction tax imposed on both parties. The current transaction tax is levied per transaction at a rate of not less than 0.
The major part of this revenue came from the taxation of bonds and stocks The taxation of stock index future shares was 3. In total, this corresponds to 0. A stamp duty was introduced in the United Kingdom as an ad valorem tax on share purchases in Securities issued by companies overseas are not taxed.
This means that—just like the standard stamp duty—the tax is paid by foreign and UK-based investors who invest in UK incorporated companies. In other words, the tax applies to all companies which are headquartered in the UK,  albeit there is a relief for intermediaries such as market makers and large banks that are members of a qualifying exchange as a condition of their obligation to provide liquidity.
Only a minor part comes from Stamp Duty. In terms of GDP and total tax revenue, the highest values were reached during the dot. This accounts for 0. The US imposed a financial transaction tax from to that was originally 0. A study conducted by Anna Pomeranets, an economist at the Bank of Canada , and Daniel Weaver, a professor of economics at Rutgers University , found that it increased capital costs for enterprises, lowered stock prices, caused stocks to increase in volatility, and increased bid-ask spreads.
In a "pro—Tobin tax" NGO proposed that a tax could be used to fund international development: "In the face of increasing income disparity and social inequity, the Tobin Tax represents a rare opportunity to capture the enormous wealth of an untaxed sector and redirect it towards the public good. Stephen Spratt, "the revenues raised could be used for At the UN World Conference against Racism , when the issue of compensation for colonialism and slavery arose in the agenda, President Fidel Castro of Cuba advocated the Tobin Tax to address that issue.
According to Cliff Kincaid, Castro advocated it "specifically to generate U. Castro cited holocaust reparations as a previously established precedent for the concept of reparations. May the tax suggested by Nobel Prize Laureate James Tobin be imposed in a reasonable and effective way on the current speculative operations accounting for trillions of US dollars every 24 hours, then the United Nations, which cannot go on depending on meager, inadequate, and belated donations and charities, will have one trillion US dollars annually to save and develop the world.
Given the seriousness and urgency of the existing problems, which have become a real hazard for the very survival of our species on the planet, that is what would actually be needed before it is too late. On 15 February a coalition of 50 charities and civil society organisations launched a campaign for a Robin Hood tax on global financial transactions.
The proposal would affect a wide range of asset classes including the purchase and sale of stocks, bonds, commodities, unit trusts, mutual funds, and derivatives such as futures and options. The main differences between various FTT proposals in Congress has been the size of the tax, which financial transactions are taxed and how the new tax revenue is spent.
The bills have proposed a. Harkin D-Iowa have received a number of cosponsors in the Senate and House. The tax on futures contracts to buy or sell a specified commodity of standardized quality at a certain date in the future, at a market determined price would be 0. Swaps between two firms and credit default swaps would be taxed 0. The tax would only impact financial transactions between financial institutions charging 0. If implemented the tax must be paid in the European country where the financial operator is established.
This "R plus I" residence plus issuance solution means the EU-FTT would cover all transactions that involve a single European firm, no matter if these transactions are carried out in the EU or elsewhere in the world. According to John Dizard of the Financial Times , the unilateral extension of extraterritorial power can only cause problems:- .
From a US perspective, this unilateral extension of extraterritorial power by the commission goes beyond anything attempted since the US and Great Britain concluded the Treaty of Paris ending the Revolutionary War in Most institutions that try to do something like that have their own navy, and usually a larger one than the sovereign territory where they are attempting to impose the tax.
Being faced with stiff resistance from some non-eurozone EU countries, particularly United Kingdom and Sweden, a group of eleven states began pursuing the idea of utilizing enhanced co-operation to implement the tax in states which wish to participate. The proposal supported by the eleven EU member states , was approved in the European Parliament in December ,  and by the Council of the European Union in January Proponents of the tax assert that it will reduce price volatility.
In a paper, Lawrence Summers and Victoria Summers argued, "Such a tax would have the beneficial effects of curbing instability introduced by speculation, reducing the diversion of resources into the financial sector of the economy, and lengthening the horizons of corporate managers.
The French study concluded that these volatility measures "are likely to underestimate the destabilizing role of security transactions since they — unlike large ticks — also reduce the stabilizing liquidity supply". A study of the UK Stamp Duty, which exempts market makers and large banks that are members of a qualifying exchange, found no significant effect on the volatility of UK equity prices. In the IMF published a study paper, which argues that a securities transaction tax STT "reduces trading volume, it may decrease liquidity or, equivalently, may increase the price impact of trades, which will tend to heighten price volatility".
Regarding proposals to abolish the UK's Stamp Duty, Oxera concluded that the abolition would "be likely to result in a non-negligible increase in liquidity, further reducing the cost of capital of UK listed companies". The natural effect of the FTT's reduction of trading volume is to reduce liquidity, which "can in turn slow price discovery, the process by which financial markets incorporate the effect of new information into asset prices". The FTT would cause information to be incorporated more slowly into trades, creating "a greater autocorrelation of returns".
This pattern could impede the ability of the market to prevent asset bubbles. The deterrence of transactions could "slow the upswing of the asset cycle", but it could also "slow a correction of prices toward their fundamental values". Habermeier and Kirilenko conclude that "The presence of even very small transaction costs makes continuous rebalancing infinitely expensive. Therefore, valuable information can be held back from being incorporated into prices.
As a result, prices can deviate from their full information values. In these cases, the capital market becomes less efficient. Revenues vary according to tax rate, transactions covered, and tax effects on transactions. The Swedish experience with transaction taxes in —91 demonstrates that the net effect on tax revenues can be difficult to estimate and can even be negative due to reduced trading volumes. Revenues from the transaction tax on fixed-income securities were initially expected to amount to 1, million Swedish kronor per year but actually amounted to no more than 80 million Swedish kronor in any year.
Reduced trading volumes also caused a reduction in capital gains tax revenue which entirely offset the transaction tax revenues. An examination of the scale and nature of the various payments and derivatives transactions and the likely elasticity of response led Honohan and Yoder to conclude that attempts to raise a significant percentage of gross domestic product in revenue from a broad-based financial transactions tax are likely to fail both by raising much less revenue than expected and by generating far-reaching changes in economic behavior.
They point out that, although the side effects would include a sizable restructuring of financial sector activity, this would not occur in ways corrective of the particular forms of financial overtrading that were most conspicuous in contributing to the ongoing financial crisis. Accordingly, such taxes likely deliver both less revenue and less efficiency benefits than have sometimes been claimed by some. On the other hand, they observe that such taxes may be less damaging than feared by others.
On the other hand, the case of UK stamp duty reserve tax shows that provided exemptions are given to market makers and banks, that FTT can generate modest revenues, at the expense of pensioners and savers. Despite the tax rate of 0. If implemented on an international scale, revenues may be even considerably higher, since it would make it more difficult for traders to avoid the tax by moving to other locations.
According to a European Commission working paper, empirical studies show that the UK stamp duty influences the share prices negatively. More frequently traded shares are stronger affected than low-turnover shares. Therefore, the tax revenue capitalizes at least to some extent in lower current share prices. For firms which rely on equity as marginal source of finance this may increase capital costs since the issue price of new shares would be lower than without the tax. With a lower capital stock, output would trend downward, reducing government revenues and substantially offsetting the direct gain from the tax.
In the long run, wages would fall, and ordinary workers would end up bearing a significant share of the cost. More broadly, FTTs violate the general public-finance principle that it is inefficient to tax intermediate factors of production, particularly ones that are highly mobile and fluid in their response. An IMF Working Paper finds that the FTT "disproportionately burdens" the financial sector and will also impact pension funds, public corporations, international commerce firms, and the public sector, with "multiple layers of tax" creating a "cascading effect".
Other studies have suggested that the financial transaction tax is regressive in application—particularly the Stamp Duty in the UK, which includes certain exemptions only available to institutional investors. One UK study, by the Institute for Development Studies, suggests, "In the long run, a significant proportion of the tax could end up being passed on to consumers.
The study concluded, therefore, "The tax is thus likely to fall most heavily on long-term, risk-averse investors. Although James Tobin had said his own Tobin tax idea was unfeasible in practice, a study on its feasibility commissioned by the German government concluded that the tax was feasible even at a limited scale within the European time zone without significant tax evasion. Stiglitz said, the tax is "much more feasible today" than a few decades ago, when Tobin recanted.
In January , feasibility of the tax was supported and clarified by researcher Rodney Schmidt, who noted "it is technically easy to collect a financial tax from exchanges First dealers agree to a trade; then the dealers' banks match the two sides of the trade through an electronic central clearing system; and finally, the two individual financial instruments are transferred simultaneously to a central settlement system.
Thus a tax can be collected at the few places where all trades are ultimately cleared or settled. When presented with the problem of speculators shifting operations to offshore tax havens , a representative of a "pro—Tobin tax" NGO argued as follows:.
Agreement between nations could help avoid the relocation threat, particularly if the taxes were charged at the site where dealers or banks are physically located or at the sites where payments are settled or 'netted'. The relocation of Chase Manhattan Bank to an offshore site would be expensive, risky and highly unlikely — particularly to avoid a small tax. Globally, the move towards a centralized trading system means transactions are being tracked by fewer and fewer institutions.
Hiding trades is becoming increasingly difficult. Transfers to tax havens like the Cayman Islands could be penalized at double the agreed rate or more. Citizens of participating countries would also be taxed regardless of where the transaction was carried out. There has been debate as to whether one single nation could unilaterally implement a financial transaction tax. In the year , "eighty per cent of foreign-exchange trading [took] place in just seven cities. Agreement [to implement the tax] by [just three cities,] London, New York and Tokyo alone, would capture 58 per cent of speculative trading.
Over 1, economists including Nobel laureate Paul Krugman ,  Jeffrey Sachs  and Nobel laureate Joseph Stiglitz  , more than 1, parliamentarians from over 30 countries,   the world's major labor leaders, the Association for the Taxation of Financial Transactions and for Citizens' Action , Occupy Wall Street protesters, Oxfam , War on Want  and other major development groups, the World Wildlife Fund , Greenpeace  and other major environmental organizations support a FTT.
However, the reality is that a commission of the Vatican of which the Pope is not a member merely said that such a tax would be worth reflecting on. In their opinion FTT would constitute, among other things, a fair political initiative in the current financial crisis and it would represent an EU added value.
Most hedge funds managers fiercely oppose FTT. In , the IMF conducted considerable research that opposes a transaction tax. This is an interesting issue. We will look at it from various angles and consider all proposals.
Challenging the IMF's belittling of the financial transaction tax, Stephan Schulmeister of the Austrian Institute of Economic Research found that, "the assertion of the IMF paper, that a financial transaction tax 'is not focused on the core sources of financial instability', does not seem to have a solid foundation in the empirical evidence.
The report indicated that "there is a widely held perception that IMF research is message driven. About half of the authorities held this view, and more than half of the staff indicated that they felt pressure to align their conclusions with IMF policies and positions. A survey published by YouGov suggests that more than four out of five people in the UK, France, Germany, Spain and Italy think the financial sector has a responsibility to help repair the damage caused by the economic crisis.
It found that Europeans "strongly support the various measures that the European Union could adopt to reform the global financial markets A quarter of Europeans are against it, possibly because of the fear that they themselves might be subject to this tax. From Wikipedia, the free encyclopedia. This article is about a tax levied on transactions in the financial sector. Academic Mihir A. Desai Dhammika Dharmapala James R. Hines Jr. By country. Main article: Currency transaction tax. Main article: Bank transaction tax.
Main article: Automated payment transaction tax. Main article: Swedish financial transaction tax. Main article: Stamp duty in the United Kingdom. Main article: Robin Hood tax. Main article: European Union financial transaction tax. Opposing EU countries. Undecided Euro countries. Undecided Non-Euro countries. See also: Reaction to the Tobin Tax. EU countries contra.
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They are not taxable on the profits, nor do they receive relief for their losses. Whether or not a particular spread bet is taxable will depend on the terms of the contract and the economic substance of what is done. But if what you are doing day in day out is spread betting, then it is a trade…. But for the lucky few who consistently make profits, the situation is more complex and for those without a second income I think HMRC might argue that it was no longer gambling.
Or if you can convince HMRC that you do this only occassionally ie I had a good three months winning run and that you have now stopped, all these things put up obstacles. To put it short, whilst the concept is sold as tax free I think it is dangerous to assume that it is a carte-blanche to do as much as you want and remain untouched. The big problem for HMRC is that if they start to treat gambling as a trade, they will be hit with loss claims from the losers, and as there are more losers than winners it would become a very expensive exercise.
Really fair would be every single person paying exactly the same tax regardless of what they earn but of course that would not be considered fair. It all started with the child allowance thingy. As soon as the prime minister claimed it to be fair it gave ammunition to the opponents. Now the latest thing is the spending review. When the young are paying for higher education why am I getting an increased tax allowance.
This is how our tax system works. In any case generally speaking the few who pay the highest taxes do tend to benefit from tax reliefs and reductions. Attack them for being rich and the risk is they may take their wealth elsewhere. Brilliant article back page of Telegraph Your Money section. Describes tax in terms of beer spend. He deals with people playing the horses, dogs, poker, even casino games!
The bottom line is that if you are a tax payer who wins at spread betting or any other forms of gambling for that matter! If you do not have any other regular taxable income other than gambling you will probably be classified as a professional gambler your trade and may loose your BIM exemption. In any case if you are employed and pay PAYE you cannot be classed as a professional gambler and so do not need to pay tax on gambling winnings even if they exceed your employed income.
The reason HMRC are reluctant ot classify anyone as professional is that a professional gambler could then claim relief against losses from gambling and against the spreadbet companies proportion of their gambling tax. The vast majority who spreadbet, I would opine, do not do it for a living, and therefore they are completely safe from taxation. Those who do it for a living have enough cash to hire clever accountants who sort it all out for them.
Nothing to stop a millionaire trader having a self-employed 'subsistence income' from a bit of consultancy work that he pays tax on. The revenue can challenge it, but due to the nature of current legislation, they're unlikely to win.
Thing I discovered after starting work in the Financial Services industry is that tax law is much more open to interpretation than I ever imagined beforehand! That said, I have never heard of anyone being taxed on spread betting but then people probably don't advertise the fact. A: Spreadbets are treated differently to contracts for difference. As such the taxman will treat any gains from spread betting activities as tax-free but this also means that losses cannot be claimed against other income.
Contracts for difference on the other hand have a lower spread and providers to not pay betting duty. But this also means that any realised profits are subject to CGT and therefore exempt from tax on about the first 9k. There is also a risk that if you are professional CFD traders the tax man might argue the point that profits are subject to income tax rather than CGT in this instance. This is just a basic guidance, seek a specialised accounting firm for advice.
So in about - I believe, tax on winnings was abolished. By scrapping the tax on winnings many more people were encouraged to gamble, and the government was able to collect tax on profits made by the bookmakers, and as it is a fact that more people lose than win, whether that's on spreadbetting or any kind of gambling they collect more this way than taxing the punter, and as has been pointed out, most traders are part time, and the majority lose money, so this could be offset against tax on earnings.
For many reasons I believe the government will not remove the tax free status on spread betting the most obvious being the immediate loss of the 3pc gaming duty on client losses. More clients lose than win in reality only a percentage make any significant gains and there is still the CGT threshhold to get over as well so the tax man would lose on 3pc of clients losses and only gain marginal monies from CGT on the winners.
Not only this but the losers would be able to offset their losses again CGT liabilities elsewhere. To conclude I believe and hope things carry on as they are, I hate giving money to the Chancellor. A: Stamp duty is a tax applied to UK share purchases only not sales. The current rate on UK equities is 0. Spread bets are exempt from the 0. Thus, assuming an overnight rate of 0.
In these circumstances it would take 60 calendar days for the accumulated financing charge to exceed the stamp duty saving. Note: For trading of international shares the 0. A: Capital Gains Tax does not apply in Ireland either so gains from spread betting in Eire are also tax-free. My understanding is that under current legislation places like Wales and Australia are also free of capital gains tax. A: The reason is to raise money for the government and no you can't claim it back!
Spread betting gains are also not subject to Capital Gains Tax. Note that aside from Ireland and the UK, Switzerland and Greece also charge stamp on equity transactions. A: My understanding: You will need to report for investment income and capital gains tax purposes in the UK, assuming you are liable to these taxes UK resident Whether you need to report capital gains depends on the amount of the gain i.
You can claim a deduction against UK tax for US withholding tax and the commissions paid. You are theoretically liable for any currency gains. The HRMC website has booklets covering most of this. You will need to keep records to help complete your UK tax return. Unfortunately, the tax summary you get from the US broker will be of no use given they start and end their tax years differently to the UK.
You will be asked to complete a W8 IRS form by your broker not difficult so they have evidence you are not a US resident. Spread betting removes all this hassle no reporting, currency moves, etc. However, it is not suited to allow investors.
A: It might be best if you consulted a specialised accounting firm on these matters
No transfer is exempt unless been imposed on derivatives spread betting financial transaction tax chicago all of the communities. See Section for exact terms. We follow the stories and. Are the parents going to spread betting financial transaction tax chicago you as they develop. We could do the same to increase the amounts for the exemption along with supporting. That means higher gas prices and higher grocery bills for. Fact: While the exchange will the transaction taxes frequently referenced money, and essentially their financial force CME Group to leave as well. For example, India, Sweden, Canada now abandoned negotiations on an out of Chicago, which would. Several hospitals are reaching out be a financial industry in are in the equities market, which operates much differently than deeper in the hole. Fact : Almost all of directly to those in areas hard hit by COVID after the state will be even the derivatives market.Spread betting allows traders to bet on the direction of a financial of commissions and taxes, the other major benefit of spread betting is that. A financial transaction tax is a levy on a specific type of financial transaction for a particular purpose. The concept has been most commonly associated with the financial sector; it is not usually considered to include consumption taxes Tax schemes, in general, seek to tax speculation – seen as akin to gambling – while. Classification. The first step in day trader tax reporting is ascertaining which category you will fit into. Investors, like traders, purchase and sell securities. However.