Posts Tagged ‘dividends’
Both financial spread betting and physical stock trading have to do with stocks, commodities, currency. However the similarity between the two is restricted to this and the differences surface as we study the pros and cons of one versus the other.
To start with, in margined trading, there is no physical delivery of stocks and there is just no exchange of any asset class between the buyer and the seller. Consequently, it is not subject to the taxes that are levied in the case of physical cash stock market trading. The activity of financial spread betting comes under the category of speculation and hence is not considered for taxation. That is one of the reasons why it is becoming popular as you can take your profits home without having to pay any tax.
Secondly, you only need to pay margin money for indulging in margined trading as opposed to making full payment for physical stock market trading. With that margin money, you also get the advantage of trading in a much higher quantity of indices or stocks. This is the concept of leverage and it is this attraction that draws many speculators to take part in financial spread betting. If your call on a particular stock is right, you can make quick gains by just paying some margin money. On the other hand, you can also lose money quickly if the market movement is against your bet and you are not able to hold your position and in that case, you will have to close your position or provide the additional funds required to make up the shortfall. There is no such danger in physical stock market trading as should stock prices crash, you can always wait till they rise again. You are holding the stock of the company and as a shareholder; you will also qualify for dividends and other advantages like stock splits, bonuses and so on.
Thirdly, when you are financial spread betting, you are making a contract with the market maker and you are susceptible to the dangers of trading where the playing field is not a level one. You would be typically trading at a lag to the real market and this can prove to be a problem when the market suddenly turns volatile and the market maker would be in a position to quote a price that is favorable to him. No such exposures exist in the physical stock market trading environment where you are trading in the real market.
There are a few things in life that often we dread doing such as summiting our tax return tax refunds. It is of utmost importance to pay taxes. In fact, there are advertisements on television and other media forms which reminds us of our tax obligations. Tax serves various purposes, mainly the four ‘Rs’.
Revenue is one of the main purposes served for by taxes. It is the income gathered by the government from the taxpayers. Taxation makes it possible for the government to raise funding for their public projects including repair of roads, building of hospitals and construction of schools. This collected revenue from taxes also pays for government functions like the judiciary and executive system regulations.
The net income of the government is actually computed by decreasing the amount of expenses from the total revenue collected. Revenue or turnover includes the proceeds coming from income taxes paid for by companies and individuals, sales of services and goods, custom duties, dividends and interests. The approximate income is dependent on the rules laid down by the government and its agencies and based on certain accountancy practices.
Redistribution is the second effect or purpose of taxation. It means allocating or transferring money from the rich sectors of the society to the less endowed members of the same society. In economics, the definition of redistribution is almost similar, income, wealth and property are redistributed to many individuals and citizens of the nation.
The aim of redistribution is to achieve equality in economics. It also aims to create a uniform income among individuals and how much they are supposed to earn. Above all, redistribution also functions as a means to correct and solve the inability of the market economy to compensate an individual worker with a sufficient salary according to the amount of work they put in. In actuality it is no duty of the rich people to actually transfer their money to the poor, it is a rule of morality alone, so the government instead redistributes the wealth collected from taxes to the poor people.
Repricing is the third purpose of taxation. Taxes aims to address the external consequences of the production. To illustrate, tobacco has a higher amount of tax compared to other goods in order to discourage consumers from excessive smoking. We all know the bad effects of smoking to our bodies and health. Taxes and subsidies effectively alter the pricing of goods, thereby changing the rate and quantity of consumed amount of goods.
Goods, when imposed with taxes and considering that any of the variables remain constant, in effect increases the market price or the price paid by the end users. However, the prices which the sellers pay for the goods the merchandise are decreased. The marginal tax is on the other hand imposed on the consumption of goods.
Representation is the fourth purpose of taxes. This simply means that the tax payers ought to be provided with the proper representation of the taxes they pay to the government and should seek their tax agents if there are any queries. The governments owes the public tax payers an accountability. Direct taxation is more likely to account for good governance whereas indirect taxation may have less substantial effects.