Spread Betting Guide

Spread betting has been a major growth market in the UK since the late eighties. It is estimated that almost one million people in Britain currently engage in spread betting. This type of betting is regulated by the Financial Services Authority rather than the Gambling Commission. Spread betting is different to traditional betting as potential losses or gains can be much more than the money that is bet.

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Introduction to Spread Betting

The returns from placing a spread bet is based on the accuracy of the bet rather than the simple activity of winning or losing with bets placed through the traditional means. A spread is a range of outcomes and the bet is whether the result is above or below the spread.

Objectives

When there is a clear favourite in any match, race or sporting event the majority of bets will be for the favourite. A spread can be applied which is basically a handicap towards the underdog in order to encourage two way betting, that is on the favourite and underdog. 

The spread is constantly fluctuating to ensure bets on both sides of the market. The bookmaker charges a commission and acts as the broker for bets placed on either side of the outcome. If there is action on both sides the bookmaker is not concerned with the outcome and he earns his profits from the commission.

Methodology – Buying

When placing a spread bet a customer can either buy or sell. For example if the spread firm issues a spread for the number of runs in a cricket Test match the gambler can bet that there will be more runs than the spread. He bets in units and his return is the number of runs above the spread multiplied by the unit.

Simply put a spread firm may quote the runs at 900 to 950. A buyer will invest at 950 for £1 per point. If the number of runs is 1000 he wins 1000 minus 950 multiplied by £1 so his profit is £50. Conversely if there were just 900 runs his loss would be 950 minus 900 multiplied by £1.

In reality the spreads are often quoted in half-point fractions to eliminate the possibility of a tie. If there is a tie there are no losers or winners and the spread firm refunds all bets. With the cost of developing the technology and other overheads this is undesirable for the operators as they would lose on the transaction.

Methodology – Selling

It is more in keeping with the psychology of betting to bet on things to happen rather than things not to happen. At some stage if there are more buyers than sellers it becomes attractive to go low on a number rather than bet on the spread being exceeded.

With the cricket illustration sellers would sell at 900 runs. If the unit stake was £1 and there were 800 runs the return would be 900 minus 800 x £1 or  £100. The seller has correctly predicted that there will be fewer runs than the spreads firms predicted as his return will be based by how many runs he was right.

Sellers lose their bets when there are more runs than predicted. If you sell at 900 and the outcome is 1000 the loss is 1000 minus 900 multiplied by the unit stake. As you can see potential losses can be substantial and a spread bettor must have enough cleared funds in his account to cover for the worst case scenario which is the maximum loss possible.

Sports Spread Betting

The spread bet is placed on the outcome of a sporting event. The most popular form of sports betting is on the outcome of soccer matches. The favourite is given a handicap or spread which means the underdog has a head start. In a soccer match between two teams of different ability the spread might be expressed at 2.5 to 2.75. The favourite team needs to win by three goals or more to cover the spread.

Another popular spread bet is the totals (over/under). This is a bet on the total number of points or goals scored by both teams. The total bets are popular because it encompasses the total number of points or goals over the whole game. The bet pays out depending on how far from the spread the final result is.

Financial Spread Betting

The leading spread betting companies generate most of their profits from betting on the financial markets. Financial spread betting involves betting on the price of commodities and indices. The amount won or lost can be unlimited as commodity prices are not restricted by scoring limitations.

To eliminate large uncontrollable losses a stop loss will automatically close a bet if the spread moves against the gambler for a specified amount. Limits can also be placed on bets when an upper price limit is hit and the bets are automatically closed. Shares, bonds and even house prices can be bet on using the spread betting model.  

 

 

 

Apparently only 3% of global gaming is done through the internet. This figure suggests that despite the proliferation of online gaming the majority of worldwide betting is done through the traditional methods. The figure includes all forms of gambling, including bingo, Poker and lotteries but it still suggests that those that gamble through the well established mediums are still in the majority.
The global betting landscape changed with the emergence of Betfair and other exchanges. However the traditional methods still provide a service for the majority of bettors. Every racehorse trainer in Newmarket will have a computer and access to the internet but there are still eleven betting offices in the town.
When betting offices became legal in 1961 there were some rather strange rules in place with regards to attracting customers. Very little had changed by 1987 when pictures of racing were allowed in betting offices for the first time. Before then punters had to rely on a service called Extel which provided commentaries to betting offices across the country.
Another development in the betting industry was the growth of sports betting opportunities. Before the internet and dedicated sports channels the majority of betting was done on horse racing. You could have a bet on the football on Saturday but you were restricted by the minimum trebles rule when betting on non-televised league matches. 
Ante-Post Betting
This type of betting is defined as betting on an event up to the day before the time of the race or sporting event. The major bookmakers price up the high profile races such as the Classics, Cheltenham Festival races and the Grand National. The major races are still priced up but these days you can bet on the Derby which takes place in June during the previous season as two year olds run their trials in the autumn.
Some of the biggest ante-post markets concern the championship races at the Cheltenham Festival. Quite often after a race at the Festival bookmakers quote prices for same race at the following year’s event. I think a great deal of this is for PR but you could still bet on the Cheltenham Gold Cup a year hence almost as the renewal of the current year had just  been run.
Ante-post betting is also very popular for sports wagering, with the soccer World Cup being a prime example. Bookmakers field bets for the next tournament over the four year spell from the previous championships. The FA Cup is another one of the many sports ante-post markets available to punters today.
Starting Price Betting
The SP or starting price is the odds on a horse as a race begins. This is determined by betting markets on the racecourse and the stance taken by the major bookmakers who can influence what happens in the betting ring. The industry SP is the price that bets are settled at in betting offices across the country.
When you place a bet on the horses or greyhounds you have a choice between taking the price available at the time of the bet or the starting price. This can work both ways with a horse that is well supported shortening up in pre-race betting activity or conversely drifting as a result of the dynamics of the market.
Bets now placed with the traditional bookmakers are not subject to tax. As recently as 2001 you had a choice between paying 9% on winnings or on the stake. Victor Chandler recognised the effects of this tax and moved off-shore to Gibraltar where he had a licence to offer tax free betting. The onus of tax now falls on the operator rather than the individual customer. In the past on-course betting was subject to 4% tax but now you can bet tax free at the track.
Live Betting
Live betting is a massive growth area which has developed alongside in running exchange betting and online opportunities. Before the explosion in this aspect of the betting markets the most you could bet on in running for a soccer match was the three way. Nowadays bookmakers offer up to 100 in-running markets on televised matches.
These days you can bet in running on even the briefest of five furlong horse race. The internet has been the key to this form of gambling. Betfair have developed the technology and others have followed to allow bets to be placed in less than ten seconds. This has led to the growth of laying a horse or team which means betting on it not to win, a development that will be discussed in future articles.