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That's interesting because in the UK spread betting on FX is regulated as gambling.

People actually prefer it this way because investments are taxable income but gambling winnings are not (and gambling is of course legal here).

So you get almost the opposite situation, where spread betting is dressing itself up as financial trading not to deceive the regulators but as a way for people to invest in a more tax friendly manner.

It’s all a response to the legal status of investments and gambling (both have different categories with different rules).

Whether something is really gambling or investment is kind of philosophical. UK regulators tend to use different terms, specifying subcategories.

UK gambling regulations allow anyone old enough to gamble on these exchanges under the same rules as sports betting. If this was classified as financial services, regulations would be a lot stricter.

Anyway, UK gambling winnings are not taxable for consumers. The casino’s cut is taxable (15% of gross), which is transferred directly to the customer via spreads whether they win or lose.

>She doesn't actually own dollars at any point; she is just "trading" with you.

How is that different than trading oil; gold or public stock? If you have ever traded any of those, I'd be willing to wager or invest that if you have, you never took possession of and never really owned barrels of oil; gold bars or even actual stock certificates.

You are most likely to have actually owned stock, but when you get into the real nitty gritty of litigation, you would be very surprised (or not, but many would) how stock trading and ownership actually work.

I presently own, for the sake of argument, one share of Bank of America. I purchased it through a broker presently owned by eTrade. The custodian for the account is Apex Clearing; they possess custody of the share. The underlying share is somewhere at (IIRC) the Depository Trust Corporation; there may or may not be a physical certificate.

Which is a complicated way of saying that the share that I think I own actually exists in the world, through an admittedly complicated web of commercial relationships maintained by professionals at regulated financial institutions. It is not simply a bookkeeping entry that my broker made up to take my $2. If I sell it, I will likely end up selling it to an internalizer who pays eTrade for the privilege (Citadel?), rather than a counterparty on a lit exchange, but it still exists. It votes in BoA matters. It receives dividends. It seemlessly transfers when I migrate between brokerages, which I have done twice since buying this share. If I wanted to pay an irrational amount of money to win internet points, I could probably even gain physical custody of an actual share certificate.

If you want to nerdsnipe further about the difference between bucket shops, Bitcoin exchanges, and financial institutions, I am happy to go into this topic in arbitrary depth.

The word you're looking for is dematerialised. Real trading happens with dematerialised assets, where actual assets are given a representation in a ledger and then moved around. This is similar to a currency on the gold standard, where a paper note is generated from and exchangeable for a noted amount of gold. In a Demat trading environment, assets like stocks, gold or any commodities are held somewhere and electronic tokens are issued for them, which are then traded by firms with compatible interfaces.

Not to be confused with gambling, where your tokens do not represent your or anyone's ownership of any tangible asset.

> Which is a complicated way of saying that the share that I think I own actually exists in the world, through an admittedly complicated web of commercial relationships maintained by professionals at regulated financial institutions. It is not simply a bookkeeping entry that my broker made up to take my $2.

Why is this the line between investing and gambling? I might own $1 billion of equities on swap. This is just a bookkeeping entry that my dealer made up to take my money. I don't see how not owning the physical stock suddenly makes it gambling.

If you own $1 billion of equities on swap, you can guarantee that your broker has actually bought the equities (or something close to them) as a hedge. There is no way that your broker has an unhedged $1 billion equity swap with you. They collect a spread on the swap transaction of a few basis points, which is hopefully less than the cost to hedge the swap. They don't want to take the risk of the position moving against them by more than a few basis points (typically the equity market moves hundreds of basis points per day) so they almost always hedge.

The Japanese FX broker, on the other hand, has the odds so firmly stacked in their favour that they have no need to actually do any FX trading (though I expect that they do some). If the margin is high enough, the statistical fluctuations don't matter that much. That's the difference between a brokerage and a bucket shop.

What do we mean with "odds so firmly stacked in their favor" here? You seem to imply spreads so large they eat all the volatility? Is that all?

>If you want to nerdsnipe further about the difference between bucket shops, Bitcoin exchanges, and financial institutions

My point is more about ownership (legal vs beneficial). See: https://www.sec.gov/comments/4-537/4537-25.pdf

It would be interesting to seeing a similar legal analysis of ownership applied to bitcoin exchanges (and wallets, bitcoin clients vs mobile).

What you say is kind of true, but it's not that black and white, is it, when you consider naked shorts?

You usually trade futures on commodities, not the commodities themselves. Unless you let it expires and the other side chooses a physical settlement! On stock, you actually own the stock, through your broker.

>On stock, you actually own the stock, through your broker.

I am fairly certain nowadays Cede & Company owns 100% of all the stock in all US markets (NASDAQ, NYSE, etc...). But if you believe you own stock that is exactly the type of confusion and uncertainty the markets themselves want the public to believe, at least according to the litigation I am familiar with, but don't take my word, familiarize yourself with the Depository Trust Company (DTC) and Cede and come to your own conclusions about stock ownership.

Cede & Co isn't the nominal registered owner of all stock on the US markets - not all US shares are street name. My IBM shares, for example, are held directly with Computershare as transfer agent/share registry.

Of course, go outside the US where the stock markets are less insane, and you'll find plenty of places where direct electronic registration is perfectly normal, such as Australia.

John Wilcox is one of the leading legal authorities on the subject and specifically funny enough uses IBM and DTC as an example, in this except from the SEC website:

"Example. John Investor purchased 1,000 sharhs of IBM common stock through Meril Lynch, his broker (a DTC participant). John Investor's shares are a small fraction of the total shares deposited in Merrill Lynch's participant account (i.e,,, 10 million), which in turn are a small fraction of the total number of IBM shares represented by certificates held in DTC's vaults live., 100 million). (DTC's entire position (100 million) is represented on IBM's share register under the name "Cede & Co."') After John Investor gave his broker the instruction to purchase the shares, his broker obtained them in the market from one or more sellers, each of which ultimately had its own DTC participant account. To effectuate the trade, DTC reduced the selling participants' accounts by an aggregate of 1,000 and increased Merril Lynchs account by 1,000.

It is important to understand that DTC legally owned those shares both before and after the transaction-it merely shifted them from one account to another."

See: https://www.sec.gov/comments/4-537/4537-25.pdf

But I'll concede the point as Computershare is the actual owner not DTC/Cede, but replace DTC/Cede with Computershare, the ownership principal is the same, Computershare is the legal owner of IMB shares at all times (before and after you buy the stock) you would only become a beneficial owner at any given point.

(I need to do a bit more research when I get home and have access to my account details... this is, of course, the understanding of one, individual, non-American investor.)

No - in my case, Computershare is the transfer agent, not a nominee. Computershare is contracted by IBM to actually administer and maintain IBM's share register, in which Cede & Co is listed as the legal owner of a huge chunk of shares, and I'm directly registered as the legal owner of a couple of thousand dollars of shares. Google "direct registration".

I didn't buy my IBM shares through a broker/DTC participant/any other financial institution. In my case, IBM issued the shares directly to me, instructing Computershare to update the share register accordingly.

Further you can demand actual share certificates from Computershare and they are obligated to provide them (at least they were >10 years ago when I wrote the software that printed them).

Street side shares are owned by Cede, but as you mention other non street side shares are directly owned. This includes direct share grants, employee stock purchase plans and dividend reinvestment plans.

Can confirm that I still have the ability to request certificates on demand just by filling out a form in the online account manager.

(As an Australian, the idea that stock certificates are still something that exists at all for publicly-listed companies absolutely astounds me, but anyway...)

You're factually correct about physical tokens, but it's not what the system is built on - that's contracts.

I'm not sure what you mean by physical tokens, but the rest sounds about right. And they can downvote me all they want, as you say I am factually correct, because factually Cede literally and technically owns the stock and everyone else just has varying degrees of contractual rights, but most importantly in no way could that lead to physical possession or even technical ownership of the stock from Cede.

And I will not even go down the rabbit hole of contractual rights, but obviously includes legitimate ideas of economic interest and voting rights, but as the comment above noted about brokers, that is were things get very interesting, because then often times people don't even own contractual rights, or alternatively many party's simultaneously have varying degrees of contractual rights over the same stock (often times leading to factual inconsistencies and legal impossibilities).

I don't know if I agree. It's a bit like if you purchased a property through a holding company and that I would object: you don't own the property, the holding company owns it. It might be technically correct but concluding that you do not own the property is misleading.

Speaking of which. https://thedailywtf.com/articles/Special-Delivery

It always amazes me (read: horrifies me) that companies are allowed to plaster FX ads in a deceptively playful and game-like way inside rail cars.

> The only purpose of the exchange rate is to be a source of legal random numbers, since a die or deck of cards would be a source of illegal random numbers.

Incidentally, Illegal lotteries in the US historically used similar sources of numbers. In their case it was apparently more of a way to guarantee that the drawing wasn't fixed than to present it as legal. [1]

[1] https://en.wikipedia.org/wiki/Numbers_game#Gameplay

> so, you give them "investment" options like "Is the yen going to trade up against the dollar?"

Even worse( or better depending on your perspective ), these "investments" allow you to leverage 100:1 or even 500:1 and while stock market close at 4pm, FX trading is 24/7.

The only ones who can make consistent money are those with insider information. The big banks and their currency trading arms with ties to central banks.

Otherwise, you either get real lucky and win big and never trade FX again or you will get whittled down until you lose everything or you hit a bad spot and lose everything in a second.

I know people who went into FX trading and they couldn't leave their homes because they were monitoring pips. It became an obsession and they all eventually gave up after losing money.

But if you are lucky and at the right place at the right time, you would retire in a few seconds. Like the swiss franc move a few years ago. If you were lucky or "well-informed" and bet the right side, that huge move could have turned your thousands into millions. But those kinds of moves are rare and unexpected.

Another problem is that if you are doing your trading/speculation in the modern "bucket shops" you run into the very same problem Jesse Livermore had in the 1890s, you get banned from the premises and your profits taken away.

There are hundreds of stories of people actually getting lucky/good in modern FX bucket shops and not getting all of the money.

The line between gambling and investment gets blurrier the more you think about it. A gamble is really just a really poor / risky investment when you get down to it.

>>A gamble is really just a really poor / risky investment when you get down to it.

I counted cards and did other advantage gambling. They were not poor investments or any more risky than other investment ventures (in fact, significantly less risky in some areas I specialized in). But it was never investing. It was always gambling.

Investing just means trying to turn your money into more money. When I say "poor" investment I don't mean that it's a bad idea but just that you can't reliably produce returns from that activity. If you could reliably produce returns from, say, playing slot machines, then investment funds would hire people to go out and generate those returns. Purchasing equity in a company is obviously very different legally but in the most basic sense you're making a bet that the company's shares are going to be worth more in the future.

I think that the difference between investing and gambling is that in investing there is at least notionally a capitalistic enterprise like a corporation being invested in.

>>I think that the difference between investing and gambling is that in investing there is at least notionally a capitalistic enterprise like a corporation being invested in.

FX/FOREX investments or futures/commodities trading don't count?

I wouldn't considers those investments as much as I'd consider them savings or hedges. If I buy dollars and put them under my mattress, that's not an investment. I'm not sure why it suddenly becomes an investment if I buy euros and do the same thing.

If you’re holding the dollars because you think they’ll appreciate then it is kind of an investment. Same with euros. Dollars are printed by the federal reserve but if you think about it they’re really securities like any other. It just so happens that this particular security is widely accepted to cover debts in the United States, hence its value. Holding dollars is a bet on the United States. If you thought the US was going to collapse you’d certainly try and hold less dollars.

The different between gambling and investment is that the latter serves a larger economic purpose while the former does not. I agree that in some cases this line might get blurry but I don't think that it's blurry when it comes to, say, playing blackjack in a casino. That is not a poor / risky investment, it's just gambling.

Just out of curiosity, what's the Bitcoin exchange you reference?

You can satisfy your curiosity trivially by looking for cross-currency Bitcoin volume stats and looking for the JPY volume. This will avoid me having made directly critical remarks of a Tokyo startup; that is, for a few reasons, something I am careful about doing.

I am interested to know the reasons why you avoid making directly critical remarks of Tokyo startups.

Some combination of "I am an optimistic guy and like seeing the good in everyone", "This is, like Silicon Valley, a very small town where everyone knows everyone and where making friends is higher expected value than making enemies", "There exist people / organizations I care about which gain or lose karma in proportion to myself and I feel responsibility to not damage their interests", and "I can be trivially deported."

Apropos of nothing one could look up exchanges ordered by Bitcoin USD volume here: https://www.cryptocompare.com/coins/btc/analysis/USD

Hey look at this video I happened to find which has nothing to do with what has been said by others ITT: https://youtu.be/ODhv4VoMssk

Also not on topic, but just an hour ago on prime time Japanese TV there was a Bitcoin ad. It appears some Tokyo based btc exchange is generous enough to run ads for the good will of informing regular people of how btc is the future of money.

I don't think FX trading is immoral...