Spread betting is any of various types of
wageringon the outcome of an event, where the pay-off is based on the accuracyof the wager, rather than a simple "win or lose" outcome, which is known as money-line betting. A spread is a range of outcomes, and the bet is whether the outcome will be above or below the spread. Spread betting has been a major growth market in the UKin recent years, with the number of gamblers heading towards one million. [The Sunday Times: [http://business.timesonline.co.uk/tol/business/money/consumer_affairs/article673440.ece World Cup to kick off boom in spread betting] ] As with all gambling, however, spread betting carries a high level of risk. [The Times: [http://business.timesonline.co.uk/tol/business/industry_sectors/leisure/article2493032.ece The perils of spread-betting] ] In the UK, spread betting is regulated by the Financial Services Authorityrather than the GamblingCommission. [ [http://www.gamblingcommission.gov.uk/client/detail.asp?ContentId=254 Gambling Commission] ]
The general purpose of spread betting is to create an active
marketfor both sides of a wager, even if the outcome of an event may appear " a priori" to be biasedtowards one side or the other. In a sportingevent, for example, a strong team may be pitted against a historically weaker team. Persons betting on the event normally would be likely to favorthe better team, to such an extent that there would be very few, if any, betting on the team perceived to be worse.
The use of a "point spread" evens out the market towards an equal number of participants on each side of the wager. This allows a
bookmakerto make a market by accepting wagers on both sides of the spread. The bookmaker charges a commissionand acts as the counterpartyfor each participant. As long as the number of participants on each side is roughly equal, the bookmaker is unconcerned with the actual outcome; profitsinstead come from the commissions.
preads in sports wagering
Spread betting was invented by
Charles K. McNeil, a mathematics teacher from Connecticutwho became a bookmaker in Chicagoin the 1940s. [Gambling Times: [http://excite.gamblingtimes.com/writers/mcharles/mcharles_winter2001.html What are the Odds?] ] The idea became popular in the United Kingdomin the 1980s. In North America, the gambler usually wagers that the difference between the scores of two teams will be less than or greater than the value specified by the bookmaker. An example:
* The bookmaker advertises a spread of 4 points in a certain game;:* If the gambler bets on the "
underdog", he is said to "take the points" and will win if the underdog's score plus the spread is greater than the favourite's score.::* The eventual score is Underdog 8, Favorite 10: 8 + 4 > 10, so the gambler wins;::* The eventual score is Underdog 8, Favorite 13: 8 + 4 < 13, so the gambler loses.:* If the gambler bets on the "favorite", he "gives the points" and will win if the favourite's score minus the spread is greater than the underdog's score:::* The eventual score is Underdog 4, Favorite 10: 10 - 4 > 4, so the gambler wins;::* The eventual score is Underdog 8, Favorite 10: 10 - 4 < 8, so the gambler loses.
Spreads are frequently, though not always, specified in half-point fractions to eliminate the possibility of a tie, known as a "push". In the event of a push, the game is considered "no action", and no money is won or lost. However, this is not a desirable outcome for the sports book, as they are forced to refund every bet, and although both the book and its bettors will be even, if the cost of overhead is taken into account, the book has actually lost money by taking bets on the event. Sports books are generally permitted to state "ties win" or "ties lose" to avoid the necessity of refunding every bet.
A "teaser" is a bet that alters the spread in the gambler's favor by a predetermined
margin, often six points— for example, if the line is 3.5 points and the bettor wants to place a teaser bet on the underdog, he takes 9.5 points instead; a teaser bet on the favorite would mean that the gambler takes 2.5 points instead of having to give the 3.5. In return for the additional points, the payout if the gambler wins is less than even money. At some establishments, the "reverse teaser" also exists, which alters the spread against the gambler, who gets paid at more than evens if the bet wins.
Bets on the total (over/under)
In addition to the spread bet, a very common "side bet" on an event will be the "total" (commonly called the "over/under" or "O/U") bet. This is a bet on the total number of points scored by both teams. Suppose the Cowboys are playing the Giants and the total is set at 44.5 points. If the final score is Cowboys 24, Giants 17, the total is 41 and bettors who took the "under" will win. If the final score is Cowboys 31, Giants 24, the total is 55 and bettors who took the "over" will win. The total is popular because it allows gamblers to bet on their overall perception of the game (e.g., a high-scoring offensive show or a defensive battle) without needing to pick the actual winner.
In the UK, these bets are sometimes called spread bets, but rather than a simple win/loss, the bet pays more or less depending on how far from the spread the final result is.
Example: In a soccer match the bookmaker believes that 12 or 13 corners will occur, thus the spread will be set at 12-13.
* A gambler believes that there will be more than 13 corners, and 'buys' at £25 a point at 13.:*If the number of corners is 16, the gambler wins (16 - 13) = 3 x £25. :*If the number of corners is 10, the gambler loses (13 - 10) = 3 x £25.
* A 'sell'
transactionis similar except that it is made against the bottom value of the spread.
*Often "live pricing" will change the spread during the course of an event, allowing a profit to be increased or a loss minimized.
In North American sports betting many of these wagers would be classified as "
over-under" (or, more commonly today, "total") bets rather than spread bets. However, these are for one side or another of a total only, and do not increase the amount won or lost as the actual moves away from the bookmaker's prediction. Instead, over-under or total bets are handled much like point-spread bets on a team, with the usual 10/11 (4.55%) commission applied. Many Nevada sports books will allow these bets to be used in parlays, just like team point-spread bets, making it possible to bet, for instance, "the Packers and the over," and be paid if "both" the Packers "cover" the point spread and the total score is higher than the book's prediction. (Such parlays usually pay off at odds of 13:5 with no "vig," just as a standard two-team parlay would.)
Cantor Fitzgeraldlaunched the spread betting exchange Cantor Spreadfair, which matches up spread bettors opposing views and allows them to bet with each other. This removal of the faceless bookmaker allows clientsto bet at the spread size and monetary level that they request, and in turn this creates a tighter spread margin, which in turn allows users to lose less and win more than with the non-exchange spread-betting firms.
analysisof spreads and spread betting is a large and growing subject. For example, sports that have simple 1-point scoringsystems ("e.g.," baseball, hockey, and soccer) may be analysed using Poisson and
Financial spread betting
By far the largest part of the official market in the
UKconcerns financialinstruments; the leading spread-betting companies make most of their revenues from financial markets, their sports operations much less significant.Fact|date=September 2008 Financial spread betting in the United Kingdom closely resembles the futures and options markets, the major differences being
* the 'charge' occurs through a wider
* spread betting has a different tax
regimecompared with securities and futures exchanges - it is in fact tax free to the customer
* spread betting is more flexible since it is not limited to exchange hours or definitions, can create new instruments relatively easily (e.g. individual stock futures), and may have guaranteed
stop losses (see below); and
* the trading is
off-exchange, with the contract existing directly between the market-making company and the client, rather than exchange-cleared, and is thus subject to a lower level of regulation. Although the spread betting companies themselves are some of the most regulated entities in the City of London.
Unlike fixed-odds betting, the amount won or lost can be unlimited as there is no single stake to limit any loss. However, it is usually possible to negotiate limits with the
* A "stop loss" (or "stop") will automatically close the bet if the spread moves against the gambler by a specified amount.
* A "stop win" or "limit" will close the bet when the spread moves in a gambler's favour by a specified amount.
Spread betting has moved outside the
ambitof sport and financial markets (that is, those dealing solely with shares and futures), to cover a wide range of markets, such as house prices. [The Sunday Times: [http://property.timesonline.co.uk/tol/life_and_style/property/investment/article1310070.ece Spread betting] ]
In a falling stockmarket, financial spread betting can also be used by investors as a means of hedging against predicted losses in a portfolio of shares. [
MoneyWeek: [http://www.moneyweek.com/file/33688/how-to-profit-from-market-turmoil.html How to profit from market turmoil] ]
The leading spread-betting companies are IG Index, MF Global Spreads and CMC Markets.
Financial spread bet example
Lloyds TSBis trading on the market at 410p bid, and 411p offer. A spread-betting company is also offering 410-411p. We use cash bets with no definite expiry.
For example, if I think the
shareprice is going to go up, I might bet £10 a point ("i.e.," £10 per penny the shares moves) at 411p. We use the offer price since I am "buying" the share (betting on its increase). Note that my total loss (if LloydsTSB went to 0p) could be up to £4110, so this is as risky as buying 1000 of the shares normally.
If a bet goes overnight, the
bettoris charged a financing cost (or receives it, if the bettor is shorting the stock). This might be set at LIBOR+ a certain percentage, usually around 2/3%.
Thus, in the example, if Lloyds TSB are trading at 411p, then for every day I keep the bet open I am charged [taking finance cost to be 7%] ((411p x 10) * 7% / 365 ) = £0.78821 (or 78.8p)
On top of this, the bettor needs an amount (AKA margin) in the spread-betting
accountto cover the bet. Usually this is either 5 or 10% of the total exposure you are taking on but can go up to 100% on illiquid stocks. In this case £4110 * 0.1 or 0.05 = £411.00 or £ 205.50
If at the end of the bet Lloyds TSB traded at 400-401p, I need to cover that £4110 - £400*10 (£4000) = £110 difference by putting extra
deposit(or margin) into the account.
The bettor will usually receive all
dividendsand other corporateadjustments in the financing charge each night. For example, suppose Lloyds TSB goes ex-dividend with dividend of 23.5p. The bettor will receive that amount.
Contract for difference
last = Malcolm Pryor
year = 2007
title = The Financial Spread Betting Handbook
publisher = Harriman House
isbn = 189-7597-93-2
last = John Piper
year = 2007
title = Binary Betting
publisher = Harriman House
isbn = 190-5641-23-0
Wikimedia Foundation. 2010.
Look at other dictionaries:
spread betting — spread .betting n [U] 1.) a type of ↑betting on sports events in which someone says what they think the final score will be 2.) a way of buying and selling ↑shares in which someone ↑bets money on whether shares in a particular company will go up… … Dictionary of contemporary English
spread betting — noun A form of gambling in which people stake money on whether the numerical outcome of an event will be higher or lower than a stated amount • • • Main Entry: ↑spread … Useful english dictionary
Spread Betting — A form of betting that depends on the establishment of a spread, or a buying and selling price, for a particular market or instrument at a certain time. For example, a bookmaker may offer a spread for next week of 120 to 130 on a market index… … Financial and business terms
Spread Betting — Spreadbetting ist ein Wetten auf und Handeln mit Finanztiteln. Inhaltsverzeichnis 1 Vorgang 1.1 Vorteile 2 Weblinks 3 Literatur Vorgang … Deutsch Wikipedia
Spread Betting — A type of speculation that involves taking a bet on the price movement of a security. A spread betting company quotes two prices, the bid and offer price (also called the spread), and investors bet whether the price of the underlying stock will… … Investment dictionary
spread betting — N UNCOUNT Spread betting is a form of gambling that involves predicting a range of possible scores or results rather than one particular score or result … English dictionary
spread betting — /ˈsprɛd bɛtɪŋ/ (say spred beting) noun betting on sporting results, movements in the stock exchange, etc., in which the bookmaker predicts an estimated outcome as a spread, and the better predicts a result higher or lower than the spread … Australian English dictionary
spread betting — noun a form of betting in which the bettor wins or loses money according to the margin by which the value of a particular outcome varies from the spread of expected values quoted by the bookmaker … English new terms dictionary
spread betting — UK / US noun [uncountable] 1) a type of betting on a sports event in which you win money if you guess the correct result within a particular range of possible results 2) economics a type of betting on the stock market in which you win shares if… … English dictionary
Spread — may refer to: *Statistical dispersion *Spread (food), an edible paste put on other foods *the score difference being wagered on in spread betting *the measure of line inclination in rational trigonometry *Temperature Dewpoint spread, dew point… … Wikipedia