Q. Do you know whether spread betting and CFD’s are permissible asset classes in SIPP’s?
Do you have any first hand experience good and bad? I am fascinated by the juxtaposition of the extremes in risk.
A: Spread bets are not allowable in a SIPP. CFDs are, but not all SIPP managers will support them. Risk is about the same, the main difference would be that with a spread better you pay a higher spread but no commission. CFDs usually have a lower spread but you pay commission. In a SIPP both would be tax free, outside a SIPP the spread better is tax free. CFD could be a good way to incorporate margin trading into a SIPP. It also unfortunately increases the risk of a wipe out to a novice very dramatically.
If you are inexperienced trade with small stakes using spread betting and see if you can make money. If you can do that you MAY be able to make money with CFDs in your SIPP. And remember spread betting companies market the fact that you can leverage up on a small deposit. This is akin to taking out a loan to buy shares – high risk but really at the end of the day it is up to you to not overleverage your acount.
Q. Do you know why big banks ban employees from spread betting?
A: It is not just banks, it’s often any company which is regulated by the Financial Service Authority. These organisations are required to enforce a 30 day rule which means you can’t liquidate the position you have put on for 30 days. It, essentially, means no speculation – no Contracts for Difference, Futures, Options, whatever. The rule is in place to restrict insider trading.
I worked for a firm which had a 30 day rule for any equity or equity derivative (globally, not just UK based). Also, if I took a position with the idea of holding for longer than 30 days, I had to write to the legal department requesting permission to close or open any trade – what a load of rubbish. If my stop triggered before 30 days or before I got permission to close, I had inadvertently violated the rule. So, at the time I had to limit myself to trading currencies (they weren’t restricted) – ha!
