Spread betting is a type of wagering where your payout depends not just on whether your prediction is right or wrong, but how accurate your prediction is. In fixed odds (“normal”) betting or parimutuel betting you place a bet and either win or lose whereas with spread betting the amount you win or lose depends on how right or wrong – how accurate – your prediction is.
Spread Betting: an Example
If you decide to bet on how many runs Alastair Cook will score in a match, a fixed odds bookmaker or betting exchange may have a market on whether he will score a 50, a century or over or under a nominated figure, for example a typical score of 48. In contrast, a spread betting company will offer a spread, for example between 47 and 49 runs and you can either buy at 49 (say higher) or sell at 47 (bet on him getting less than 47). The bookmaker makes their profit due to the spread, the middle ground on which neither side wins.
In the example above, if you stake £1 per run and sell, should the Essex batsman score 31 you would make a profit of £1 for each run under the spread, in this instance it would be 47 – 31 = 16, so £16. However, in the unlikely event that Cook makes a huge double century you better have your funds ready. If he made 294, as he did against India in 2011, you would lose a pound for every run over 47 – in this case leaving you with a serious loss of 294 – 47 = 247, so £247.
As you can see, with spread betting you can lose substantially more than your stake and on volatile markets such as runs in cricket this can mean a high level of risk. Of course, conversely, you can also make very large profits when things go your way. In the 2011-12 Ashes, Cook’s series run may have been quoted at 420-430. If you felt that Cook was ready to put the Aussies to the sword you may have bought runs (effectively saying he will score higher than the spread) at 430 for a £1. Cook made 766 runs over the five Ashes Tests which would have resulted in a huge profit of £336.
Pros and Cons
One of the main advantages of spread betting over fixed odds betting is the flexibility it gives you in your bets. For example, in football, Arsenal may be expected to beat Spurs by 1.1-1.3 goals. Obviously they cannot beat them by exactly 1.1, 1.2, 1.3 or any other fraction of a goal but this means the bookie thinks they will win by one and maybe two or more… but probably one. If you think Spurs will perform well, you could sell Arsenal supremacy (supremacy being the name of this market) and make a profit on ANY result at all where Spurs do better than lose by two clear goals. Whilst fixed odds betting may offer similar handicap markets they won’t reward you in increasing amounts should Spurs win, whilst spread betting does.
Spread betting also tends to prolong the excitement of your bets as the accuracy of the prediction matters. In the example above, if you sold Arsenal (effectively backing Spurs to do well) a fixed odds bet would be all but over if Arsenal went 3-0 up, whereas with a spread bet each goal scored by either side at any time would affect your position.
Other advantages of spread betting include the opportunity to bet on credit, the fact that financial bets are a great tax free alternative to actually trading shares and the variety of special and novelty markets spread betting firms offer. In addition, spread betting firms often offer large free bets to new customers.
On the downside, some people find spread betting hard to understand and there is an obvious danger of betting on credit. The aforementioned ability to lose far more than your stake and not know the exact amount of your win or loss in advance may also be deemed a negative feature.