About Spread Betting
What is spread betting?
Spread betting is a form of trading in which you bet on financial and non-financial instruments: the price movement of a share, index, currency, commodity and bond, or on the events of different sports and other ‘fancy’ events. It is a way of playing the markets without actually owning any shares.
The concept was created in the 1970’s by a then 35-year old investment banker called Stuart Wheeler. However, it is only since the late 1990’s that spread betting has gained widespread appeal. To put it briefly, the system of spread betting allows access to markets that were previously restricted to institutions, banks and wealthy investors.
The three main catalysts of the dispersion of spread betting include the internet, the increased volatility in and unpredictability of world markets, and the simplicity of spread betting.
The characteristics special to spread betting can be summed up in the following list:
- the mechanism is very straight-forward and easy to understand
- open to everyone, since it requires a small amount of capital, thus a spread betting account can be opened with just a few hundred dollars
- one spread betting account makes accessible a range of different products
- credit available
- exposed to a wide range of markets: one can bet on commodities, interest rates, bonds, stocks, indices, currencies, and also on sports and politics
- ability to profit from markets either rising or falling in price
- gains are nor taxable
- low transaction cost
- removes currency exposure, so there is no need to worry about the fluctuation of foreign currency
- extended trading hours
- less paperwork as compared to conventional share dealing
- most spread betting firms provide sophisticated trading platforms
The basic mechanism of spread betting
Spread betting companies take a close look at certain events, and make a skilled and sophisticated guess as to the outcome, However, this guess includes not just the end score but other things that may happen during that certain event. Then the company makes itself the baseline for what it predicts is going to happen, and then bettors can opt for or against this position, plus how many points up or down.
Through the example of shares in the field of financial spread betting, the basic steps are the following:
Step 1: You ask for a bid-offer quote from a spread betting company.
Step 2: If you think the shares are going to rise above the offer price, you buy. If you think the shares are going to fall below the offer price, you sell.
Step 3: You tell the spread betting company the size of the stake you want to bet.
Step 4: You tell the spread betting company the total funds you wish to risk and place and appropriate stop loss.
Sport spread betting is a very similar concept to financial spread betting; it involves a calculated prediction about the match by a betting company and then a bet against that prediction. There are several different predictions that the sports betting company can make, including the time of goals, total points in a game, or even the sum of the red and yellow cards, or the jersey numbers of goal scorers. Sports spread betting is most straightforwardly explained through an example:
This evening there is a football match between Barcelona and Real Madrid. The sports betting company believes that with these two teams it is guaranteed to be a goal in the early part of the game and sets the spread at 19-22. This means that they believe that the first goal of the match will be scored within the 19th and 22nd minute. However, you disagree and feel that with these two strongly matched teams the goal will come much later in the match. You chose to buy for $1 at 22. And … you were right to do this. Messi finally scored in the 62nd minute of the match. You beat the spread by 40 minutes and have made a profit of $40.
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