All about spread bets
What is spread betting?
1st January 2007
Spread betting has its roots in the basic attributes of gambling: placing money or a stake on an outcome and winning or losing depending on that outcome. But spread betting's essential difference is also what makes it more compelling that straight win/lose betting.
Those stimulating aspects of spread betting are that you can win money without backing the winner, and interest is maintained in the bet until the end of the event, even when its result is a foregone conclusion.
And while spread betting has been around in some places for as long as sport and racing have, in the past 20 years or so it has also become a popular form of betting or speculating on financial markets that has distinct tax advantages, and is increasingly become a legitimate form of hedging investors' financial positions. In effect, companies and investors are using the financial spread betting market in currencies, commodities, shares and interest rates, as a way of insuring themselves against losses in the underlying markets.
Spread betting has now become a popular form of gambling for novices and experts alike, but for those not familiar with it, it is surrounded by an air of mystery and a general perception among the wider public that it is complicated.
Spread betting has its roots in the basic attributes of gambling: placing money or a stake on an outcome and winning or losing depending on that outcome. But spread betting's essential difference is also what makes it more compelling that straight win/lose betting.
In reality, it is simple. It is a form of gambling to win or lose money on how close or far you are from a specific result or event.
A spread betting firm makes predictions on various aspects of sporting or topical events or of financial instruments such as the price of gold or share price indexes like the Dow Jones Industrial Average.
The prediction is in the form of two prices or numbers. The range between them is known as tthe spread' and forms the basis of the spread bet.
The punter decides whether the firm’s prediction, or spread, has been pitched too high or too low.
If punters believe the prediction is too high, they will bet low (also known as a ‘sell’) at the first named price. If they believe the prediction is too low, they will bet high (also known as a ‘buy’) at the second price.
A Simple Concept
1st January 2007
Spread betting is based on a simple, everyday approach to predicting (or guessing) what you don’t know. For example, imagine someone asked you to guess the age of a man sitting at the bar. You might be inclined to say 'late thirties' or 'between 37 and 40 years old'.
A second person, Jack say, might have a different opinion and reckon the man to be middle 30s, maybe 35/36 and yet Jane might guess early 40s. If this were a betting situation, Jack would bet low (or sell) at 37 years while Jane would bet high (or buy) at 40 years.
This is how spread betting firms work. They will predict, for example, that the Dow Jones Industrial Average will be between 12550 and 12600 in a month’s time. Or they might offer a spread of 300 to 325 on the number of runs a batsman would make in a cricket test series. Then it is up to punters to take a view on whether the spread betting firm has got it right. (For other examples of actual spread betting see section ‘How does spread betting work?’)
It is also worth noting that the spread betting firms do not change commission or a fee. They make their money on the 'spread' and in the financial sector, they usually offset their book in the underlying market, which means that unlike straight bookmakers, they do not have an interest in who wins or loses.
So spread betting provides more interest than a straight win/lose bet. Punters are not just betting on whether the Yankees will beat the Dodgers or Manchester United will beat Chelsea, or the Dow Jones Industrial Average will go up, but by how much. That means that interest is retained right until the end in spread betting.
But be warned, spread betting is more risky than straight betting because the basis of betting is dollars, pounds, pesos, per point (see section ‘How does spread betting work?’). It means that winnings can be big but so can the losses.
This high risk nature means that punters should not do spread betting unless they fully understand it.
Higher risks can be managed by closing out positions early or by setting up stop-loss positions (see How spread betting works).
As spread betting has grown in popularity there are now very many opportunities to take positions on most sports, many political events and a host of financial instruments.
And there are a growing number of professional firms, most with very solid reputations and in the UK regulated by the Financial Services Authority, that offer spread betting over the phone and online, where most spread betting is done.
One of the most compelling aspects of spread betting is that many things are not easily amenable to analysis. How many corners will Arsenal force against Liverpool? Your guess is as good as the spread betting firm.
Several of the spread betting firms offer practice opportunities on their web sites to enable people to get a feel for it committing to an actual spread bet. They also offer free tips and advice on how to spread bet successfully.
Once you've developed confidence that you understand it - which shouldn’t take long once you tried a couple of examples, you can find good online sites and spread bet using your credit card.