Archives for 2014

Introducing Financial Spread betting

For most of us, investing in the movements of stocks, shares, commodities, currencies, government bonds and the like is something we leave to the professionals. If we do engage in these multi-million pound markets, the likelihood is that we will do so via a third party organization such as a pension provider or some form of endowment policy or investment product. In this way we are all investing in the markets – even if we take a hands-off approach to that investment.

Increasingly, however, there is a trend for getting directly involved with the market variations which give this sort of trading its impetus. Financial spread betting (FSB) is the latest vehicle to enable such a direct engagement with the market movements that underpin our national and indeed international financial well-being.

Ever since the Thatcherite loosening of the barriers to entry to share dealing in the 1980s the public appetite for trading has been on the rise. As the derivative-based logic of the trade floors once reshaped the sports betting industry – prompting the development of ‘spread’ betting itself – the wheel has turned full circle with the advent of a mechanism that allows the general public to bet on stock and currency markets on the same basis.

Spread betting works on the basis that an initial stake is simply a marker set against a volatile market position. The player’s position will effectively bet on which way the market will move and his or her return will reflect the extent of that movement. For example, a £5 initial stake will realise a £20 return if the market moves four points in the anticipated direction. If the market moves ten points the return will be £50, and so on.

The downside to this equation is that if the market moves in the opposite direction losses are calculated according to the same formula. Given the open ended nature of the contract spread betting is therefore anything but a safe bet. But it does have considerable potential for profit.

Because no stock is actually bought or sold during this process any returns are treated as a bet rather than an investment per se. That means that stamp duty and capital gains tax do not apply. For many serious investors this is seen as reason enough to use FSB, even though the market mechanisms are precisely the same as those used by professional traders. Hence, for example, tradefair spreadbetting makes use of the same Contract for Difference as are employed in the City.

The public appeal of this sort of approach to the financial markets is a direct corollary to the general surge in betting activity that interconnected technologies enable. Smartphone use is expected to increase eight fold by 2020 and it is that expanding market that FSB is increasingly being targeted towards. The proclaimed difference between FSB and a sporting spread bet is the volume of market intelligence that is available to inform any financial market assessment. Needless to say, the merits of that claim are open to debate.

For those attracted by this sort of direct connection with the markets it is worth noting that the major providers do offer cashless demo versions of their software that allow a risk free, hands-on trial of FSB. It is, admittedly a stimulating experience, but it is most certainly not appropriate for investors of a nervous disposition! On that basis the market for FSB is always liable to be limited, but for those of an adventurous disposition, or those confident in their market research and insight, it does offer an extremely direct means to exploit market volatility without recourse to all those professional intermediaries.

Everything you need to know about car finance

Few people have the necessary funds available to buy a new car outright, so will often instead look at one of two options, either leasing the vehicle, or financing the purchase. Whilst arranging finance is in itself not a particularly complicated process, it’s necessary to have a decent understanding of the finer points to make sure you’re getting the best deal. There are various financing options open to you, from credit unions, banks, online, and often the dealership itself. You can click here to see a representative example of dealership financing for a user SEAT.

Many car financing deals either follow the hire-purchase option, where after the final payment has been made the car belongs to you, or personal contract plans, whereby at the end of the repayment term you have the option to buy the car with a final payment, or sell it back to the dealership for a pre-agreed amount (subject to points such as physical condition, mileage of course). If the trade-in value is greater than the final payment due, then you’ll usually be allowed to put that against your next purchase.

The amount that you need to get financed is the value of the car, minus the trade-in amount, so in a very simplistic example:

£20,000 – £2,000 = £18,000 financing required

You’ll then pay it off in monthly instalments over an agreed term.

Interest

If you opt for a shorter term length, commonly 24 or 36 months, then you may well find the vehicle you want comes with 0% interest. If you can handle large payments over a short period, then this is a big advantage. But many people prefer not to, or simply can’t afford that, so need to factor the cost of interest into their calculations.

So a car that is priced at £20,000 might, with financing spread over a two-year period, cost something like £24,500.

The amount of interest you need to pay on your deal will vary according to several factors such as:

Your credit rating

Length of the loan (Generally shorter length = lower interest)

Age of the car (Again, generally newer = lower)

Even your geographical location (less of a factor if financing online)

Therefore before you even approach financing it’s vital to get a copy of your credit rating from a company such as Experian and correct any mistakes that may negatively affect your deal. You could find you make significant savings if they have outdated or invalid information about you.

Ultimately, with financing, everything depends on the total amount you can afford to pay for the car, and over what length of time, so know that before walking onto the forecourt.

Lastly, some advantages and disadvantages of the various sources of financing:

Dealerships – This is a fast and convenient way to arrange financing, but you need to do your research thoroughly to ensure you get the best deal. Naturally for the dealership this is a profit-making enterprise, so be prepared to negotiate, and to be upsold extras such as extended warranties and undercoating. And remember that interest payments are usually front-loaded which can be a problem if you plan to pay if off early. Most dealerships offer a range of finance options.

Banks – Finance from a bank is likely to be competitively priced and may also come with insurance free of charge. Plus, they often have specialists on hand who can check you’re getting the best value for money. However, if you want to buy on a weekend or evening and you’re in a hurry then they’re not convenient.

Online – Again, arranging finance online can be competitively priced, and convenient, but you don’t get that personal service – you can’t ask the detailed questions you could at the dealership.

The Making of a Champion

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