Spread Betting comes in the form of two distinct flavours; sports and financial. However, the principle of spread betting is the same regardless of the types of market or bets involved.
The spread betting firms quote a spread on the future prospects of a share or index, or the predicted outcomes of a sporting event. The investor/gambler can then decide as to whether they believe the price will rise or fall.
Don't worry if this makes no sense. By the time you have finished reading this short guide to spread betting you will have a good understanding of how spread betting works. You can then consolidate your understanding by looking at some further examples, as listed on the left of this page.
Spread betting is most easily explained through an example. We will use the market of 'Total Corners' in a football match as this is easy to relate to. This market is based on the total number of corners accumulated by both sides in a game. However, the same principle applies to all spread bets, both sporting and financial.
ExampleMatch: England v France
Quote for corners: 10-11.
The spread of 10-11 for this market states that the spread bet firm believes there will be between 10 and 11 corners taken during this game.
Buy ExampleYou believe there will be more than 11 corners (perhaps you think this will be a very attacking game).
So, you buy £20/point at 11.
profit: You were right. The final number of corners was 15, i.e. 4 more than 11, the number of corners you bought at. You win 4 x £20 = £80 (tax free)
loss: You were wrong. The final number of corners was 8, i.e. 3 less than 11, the number of corners you bought at. You lose 3 x £20 = £60
Sell ExampleYou believe there will be less than 11 corners (perhaps you think this will be a very defence game).
So, you sell £20/point at 10.
profit: You were right. The final number of corners was 8, i.e. 2 less than 10, the number of corners you sold at. You win 2 x £20 = £40 (tax free)
loss: You were wrong. The final number of corners was 15, i.e. 5 more than 10, the number of corners you sold at. You lose 5 x £20 = £100
You will notice that 'buy' transactions are made at the top end of the spread and 'sell' transactions are made at the bottom end.
Risk ArbitrageRisk Arbitrage is a fairly rare opportunity when a profit can be made on a spread betting event regardless of the result.
The opportunity arises due to the fact that there is more than one company offering spread bet prices. When one firm offers a spread where the upper price is less than the lower price of another firm it is possible to buy with one bookmaker and sell with the other, with the gap between the two being the guaranteed profit margin.
These opportunities are rare, but as long as you are quick enough to place a bet with both companies before the spread is amended you cannot fail to make a profit.
More Information:
Guide to Spread Betting
