Spread Betting : What Is Spread Betting?

Betting used to be a pretty simple affair : you walked into a bookmakers, and the bookmaker told you what odds a particular event was being offered at, and if you liked the odds then you placed a bet.

The problem was that a lot of the time, punters didn’t like the odds especially, but they had to take those odds because if they went to the next bookmakers they would find almost identical odds there.  In addition, the number of events on which they could bet was pretty small - generally horse and dog races, and the results of sporting events.

Then came the betting exchanges and spread-betting firms - and everything changed.  Now you can bet not just on the correct score of a game, but on how many throw-ins there will be in a game.  You can bet not just that a horse will win or place, but that a horse won’t win or place.  If you think the odds being offered are poor, or just plain wrong, you can set your own odds - in effect becoming the bookmaker, and “laying” the odds to your fellow punters.  And, with spread-betting, you can essentially bet “how right” you are about a particular event - the more right you are, the more you win, and the more wrong you are, the more you lose.

In spread betting, the “spread” refers to two numbers being offered by the bookmaker (or by a fellow punter).  To bet, you either wager under the lower number, or over the higher number.  To take an example, there may be a spread bet available on a tennis match.  How many aces will Federer serve in a particular match?  The spread might be 30 - 34. The “30″ represents the “bid” price, or the price you can “sell” at.  The 34 represents the “offer” price, or the price that you can “buy” at.  If you think he’ll serve less than 30 aces, you “sell” that bet.  If you think he’ll serve more than 34 aces, you “buy”.  The “spread” is the difference between the two prices shown, i.e. 4 in this case.

The amount you stand to win or lose is not fixed as it is with traditional betting.  Instead whatever you decide to stake is multiplied, so that winnings can be very large - but losses can be correspondingly large.  Lets say in our example we decide  to stake £1 or $1 on each ace in the match, and we think Federer will serve less than 30 aces.  If Federer serves 20 aces in the match, our return would be £1 or $1 for each ace less than 30, so we would make a profit of £20 or $20.  But if Federer serves 40 aces, our loss would be £6 or $6 (the spread was 34, so our loss is 40 - 34 = 6).

Spread betting is so different from traditional betting that it is actually governed by different advertising rules in the UK.  You can advertise spread betting as a financial product, rather than a gambling product:

Spread betting may be advertised as an investment activity under the Financial
Services and Markets Act (FSMA) 2000, the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 and other FSA rules and guidance.

Spread betting may be advertised on specialised financial stations or in
specialised financial programming only. Spread betting advertisements must
comply with the gambling rules (see Section 3, Rule 21).
A “Spread Bet” is a contract for differences that is a gaming contract, as defined in
the glossary to the FSA Handbook.
For this purpose, a “specialised financial station” is an Ofcom licensed station whose
programmes, with few exceptions, are likely to be of particular interest only to
business people or finance professionals. “Specialised financial programming” is
programming that is likely to be of particular interest only to business people or
finance professionals.

Spread betting and betting indexes have spawned a whole new type of punter - the punter who works in the same way as a “day trader” in the financial markets.  These punters make their living from the betting exchanges. They’re professionals.  Indeed, the whole distinction between a spread-bettor and a day-trader has broken down now that spread betting firms offer spread betting on financial markets.  In the UK at least, no tax is due on bets, so spread-betting is often actually more lucrative than buying or selling shares directly.  Instead of holding shares, a punter bets on which way a share will go - will it rise or will it fall?  You can also bet on an index - for example betting that the FTSE or Dow Jones index will rise, or fall.

The possibilities are almost endless, but a good place to start is by opening a Betfair account, and learning the basics of a betting exchange.  Befair have a ton of information to support new account holders and help them learn the ropes - and you’ll also get some free cash to try out the service.

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