Online version: http://www.lowtax.net/newsletter/ltx_focus_april09.asp

Dear Colleague,

In this month's LTX focus we take a fresh look at Alternative Equity Investment.

Once upon a time, before the Internet and before globalization of the financial sector, investment for most people meant buying stocks, shares or collective investment units through a broker, using the mail and the telephone.

You can still do it that way, but more and more people, especially globe-trotting expatriates, do it on-line, and do it for themselves using a whole zoo of techniques in which direct ownership of underlying shares is just one solution, and no longer the best in many situations.

Trading methods now encompass Contracts For Differences (CFDs), Spread Betting, Equity and Financial Derivatives (Futures and Options), and Exchange Traded Funds. Even in plain vanilla equity investment, the one-time focus on national bourses has given way to a wide variety of tradeable markets, on or off the Internet, including so-called 'offshore' stock exchanges.

In this feature, we will review the progress and uses of some of the newer ways of trading and investing, paying attention as well to tax, which is a major issue for many investors and underlies the development of many of the newer techniques, particularly in jurisdictions which cling to stamp duty, such as Ireland and the UK.

Contracts For Differences (CFDs)

Share CFDs (they are also used to trade other instruments such as currencies) are an agreement to exchange the difference in value of a particular share between the time at which a contract is opened and the time at which it is closed. CFDs mirror the performance of a share or an index; they are traded on margin, and profit or loss is determined by the difference between the buy and the sell price.

Because contracts for difference trade on margin, investors only need a small proportion of the total value of a position to trade. CFDs mirror rights in the underlying shares; thus the owner of a share CFD will receive cash dividends and participate in stock splits, rights issues or takeover action.

CFDs have grown enormously in popularity over the past seven years, particularly with hedge funds, and are thought to underlie 30% of the LSE's trading. The majority of major brokerages now offer these products to individual traders via internet trading platforms, giving instant access to quotes and other information pertaining to the market. However, individual investors often use spread betting rather then CFDs.

You can read the rest of the feature here: http://www.investorsoffshore.com/html/specials/april09_altequity.html

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Kind regards,

Kate James