Introduction to Spread Betting
Spread betting was first invented by US mathematician Charles K. McNeil, who later went on to become a securities analyst and a bookmaker in Chicago after the Second World War. This form of betting is not strictly speaking legal in the USA, but is prevalent in Australia, UK and a host of other European countries where betting on sports is legal.
If we were to take a slight deviation from sports betting, spread betting had also been popular with respect to trading in gold. During the mid-seventies, when trading on gold was an extremely prohibitive market for most people, London based investment banker Stuart Wheeler’s IG index opened avenues for many who wanted to deal in the commodity.
Spread betting is basically wagering on the outcome of an event where the reward is based more on the accuracy of the wager rather than a simple win-or-lose bet. A spread translates into a range of outcomes and the bet is made on a speculation whether the actual outcome will be more or less than the spread.
For spread bets, there are two prices which one will come across in the market – the purchase price and the selling price. The difference between the two is referred to as the spread. The best thing about this kind of betting is that companies who deal with spreads do not charge any commission as they profit immensely from the spread.
Spread betting in sports has been in vogue for a while now. This kind of betting is normally seen in sportsbooks which also offer casino games. For someone who is an astute gambler, betting on the spread makes a lot of sense. When a casino accepts a spread bet, the odds are of 10, 11, or -110. As a result, whichever team wins the spread, the casino will make a profit of at least 5% regardless of who wins the bet. For example in a spread bet where both teams wager £200 in total, the casino will definitely make at least £10.
The most popular form of spread betting for online bookmakers is on rounds of football. Premier League football draws take the most bets as far as spread betting is concerned. The form of spread that we are talking about here is a total.
A total bet is a solitary wager on whether or not the combined goals, points, or total runs scored in a game will be over or under what the bookmaker has set the odds at before the event has begun. A punter is only concerned about the combined score of each team at the end of the game.
In case of a football match, stats such as number of fouls committed by each team, corners, even the number of offsides can be the subject of a spread bet. Say for example in a match involving Team A and Team B, the bookmaker believes that a total of 6-7 offside decisions will be given and hence, the spread is set at 6-7.
Suppose A wagers £100 on the possibility of there being more than 7 offside decisions. If the match sees 15 offside decisions, A will win [(15-7) = 8x100] £800 on his wager. If however there are only 2 offside decisions in the entire match, A will lose [(7-2) = 5x100] £500 on his wager.
The more the total is on your side the more you win and the further away the total from your spread, the more you lose. You can however set stop losses in many cases so that amount you can lose if the total moves too far against you is limited.
From a mathematical point of view, in order to be successful in spread betting, a punter must win at least 52.38% of his bets to beat the spread.
If someone regularly invests their money on the stock market, but is also an avid sports fan at the same time, it might be a good option to try their hand at this kind of betting. This is why:
Let’s consider for example a purchase of 1,000 shares of Barclays at a price of £205.00. The price goes up to let’s assume £211.00 before the shares are sold thus netting in a net profit of £6,000. Although the deal looks nice, let us not forget that in order to purchase 1,000 shares of Barclays on the day, one would need to have at least £205,000 in their bank account.
Also, once commissions and related taxes are taken into account, the net win for a trader will be a very small percentage of his total outlay on the transaction as a whole. However, if one were to invest even 25% of this money on a spread bet on a sporting competition/event, the chances of winning big are huge. The risks are obviously greater but you don't need as mcuh capital to make big profits.
The thing about spread betting is that the risks involved in terms of losing money are huge. However, at the same time, there is also the potential to win really big if one gets it right in this arena.
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