A central feature of financial betting is the fixed risk nature which
allows market participants to limit the risk to a known amount. When
one opens a bet (long or short) they know beforehand what risk they are
taking. What important here is that you can exit your bet at any time
before settlement thus you have an option of minimizing the risk even
further. The same can be applied to the winning bets (you can collect
the win before the settlement time).
Liquidity is always provided and is achieved by the bookmaker acting as a market maker,
always being willing to sell bets to a buyer, and in the case it is
permitted, to buy bets back from a participant wanting to sell the bet
before it expires.
A central feature of financial betting is leverage.
The benefit of leverage to the participant is that it allows a greater
percentage change in capital than if it were invested directly in the
underlying asset. This makes financial betting less capital intensive
than trading directly on securities exchanges
Managing Risk in Spread Betting
Despite the risk that comes with the use of high leverage, spread betting
offers effective tools to limit losses.
Standard Stop Loss Orders - Stop losses orders allow reducing risk by
automatically closing out a losing trade once a market passes a set price level. In the case of a standard stop
loss, the order will close out your trade at the best available price once
the set stop value has been reached. It's possible that your trade can be
closed out at a worse level than that of the stop trigger, especially when
the market is in a state of high volatility.
Guaranteed Stop Loss Orders - This form of stop loss order guarantees to close
your trade at the exact value you have set, regardless of the underlying
market conditions. However, this form of downside insurance is not free.
Guaranteed stop loss orders typically incur an additional charge from your
broker.
The Bottom Line
Continually developing in sophistication with the advent of electronic markets,
spread betting has successfully lowered the barriers to entry and created a vast and varied
alternative marketplace.
The temptation and perils of being
over leveraged continue to be a major pitfall. However, the low capital outlay
necessary, risk management tools available and tax benefits
make spread betting a compelling opportunity for speculators.
Most punters are familiar with fixed-odds betting, where
players bet on an outcome and are given odds based on the likelihood of
that outcome. But another form of sports gambling has been growing in
popularity over the past few years, especially in the United Kingdom.
It's referred to as spread betting, and while the risks are higher than
fixed odds, so too are the rewards. Sports spread betting is based on
the same concept as the stock market, where a Buy Price and a Sell price
are quoted for shares. for example Shell 405 - 410, meaning that the
stockbroker is offering to buy Shell shares from you at 405, or sell
them to you at 410.
Spread Betting is an unfixed bet type that
empowers the punter to predict an outcome of a match or event and back
their judgment against the 'spread' quoted by the sports spread betting
company. The 'spread' is a scoring range created by the sports spread
betting company on a specific event or match. If punters believe this
spread is too high or too low, they can sell or buy accordingly. The
winnings or losses are calculated by the stake multiplied by the point
difference from the spread.
About ten years ago someone had a brainwave and realized
this could be applied to sports. It is hardly surprising that since
then sports spread betting has really taken off. Basically, the punters
will name their stake and decide if their bet will be higher (sell) or
lower (buy) than the point spread quoted by the sports spread betting
bookie.
The advantages of sports spread betting are many and various:
Potential of large wins from small stakes.
You can bet in running.
Markets are more equally balanced.
You can back selections to do badly as well as to do well. i.e. for
example you can bet for a particular player to score or not to score.
The more correct you are, the more you win. (Of course, the more wrong you are, the more you lose!).
It is more exciting than fixed odds betting because your profit can keep going up. e.g if your team keeps scoring!
Once you have opened an account, bets can be placed in seconds either online or over the telephone.
You can close your spread bets when you like. As soon as soon as you
are in profit you can take your money and run. Even before the match or
season is over. This also means that you can cut losing bets early.
Similarly, you can minimise your risk with a stop win/loss.
You don't need to tie your money in the bet unlike what happens in
fixed odds betting where you place your bet and wait for the event to
finish. With spread betting there is no need to pay for the money
upfront - bets are settled when the market is over so you don't need to
have your money tied up for the whole season if you are betting, for
instance on which team will win the Premiership.
Unlike with conventional bookmakers, winning accounts are not
closed. The spread firms make their money on the spread - the difference
in price between what you can buy at and what you can sell at (just
like the bid and offer prices of a stockbroker for a share).
Spread firms in the UK are monitored by the Financial Services Authority, which means your money is always safeguarded.
Disadvantages:
The computations to work out profits are slightly harder. Example: difference of outcome and spread multiplied by bet stake.
WHAT IS SPREAD BETTING?
Spread betting is a way of investing in the movement of a particular market – like forex, shares or indices – without actually owning the asset. Spread betting allows you to take a position on whether you think a market will rise or fall, without having to buy the underlying asset. Importantly, spread betting is a leveraged product. This means you only have to put down a small deposit for a much larger market exposure. Betting using leverage means there are significant benefits and risks: your investment capital can go further, but you can also lose more than your initial deposit. Spread betting is flexible as it's possible to take short positions and deal on over 10,000 markets. However, it is important to understand the risks involved and have suitable risk management strategies in place. Is spread betting for me? Spread betting is suitable for: Active traders looking for tax-free profits* Shares traders looking to diversify their portfolios People who are interested in the markets and what affects them Those looking to add flexibility to their investment capital, through leverage. Spread betting enables you to speculate on the movement of a particular asset – like a currency pair, company stock or even an entire index – without actually owning the asset. With spread betting, you predict an outcome, and the degree to which you are right or wrong determines the size of your profit (or loss). Spread betting differs from alternatives such as fixed-odds betting, where you have a simple win/lose outcome and a pre-defined payout or loss. When financial spread betting, the outcome you're speculating on is the direction in which the price of a financial instrument will move. If it moves the way you predict, your profit will grow the further it goes. However, if the market moves against you, your loss will also increase as the price movement becomes greater.
Betting on the price increasing is referred to as going long, while betting that it will decrease is called going short (or ‘shorting’). How spread betting works When you spread bet, you’re betting on whether the price of an underlying asset will rise or fall. The spread There's a quote of two-way price on each market. This comprises the offer price and the bid price. The difference between these prices is known as the spread. If you think a market is set to rise you ‘buy’ at the offer (higher) price, and if you think the market is set to fall you ‘sell’ at the bid (lower) price. When you want to close a bet, you take the opposite action to when you opened it: buying if you sold, and selling if you bought. For that reason, the market price of your asset will have to move beyond the spread before any profit is made. The bet size The bet size is the amount you bet per unit of movement of the underlying market. You can choose your bet size, as long as it meets the minimum we accept for that market. Your profit or loss is the difference between the opening price and the closing price of the market, multiplied by the value of your bet.
Spread betting is 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 be lower than the bid or higher than the
offer. The investor does not own the underlying stock in
spread betting, they simply speculate on the price movement of the stock.
BREAKING
DOWN 'Spread Betting'
For example, assume that a
spread-betting company quotes a bid of $200 and an offer of $203 for ABC stock
and you believe that the price for ABC will be lower than $200. Since you
believe that the price of the stock would be go below $200, you could
"bet" $2 for every dollar that ABC falls below $200. Therefore, if
the stock price after a week came to $190 you would receive $20, but if the
price was $215 you would end up losing $30.
