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Spread Betting - explained

Spread betting is just another form of betting. Spread Betting is both innovative and old. It has taken the age old philosophy of market trading and combined it with modern thinking towards sports betting and financial indices. In reality the bets are very simple to understand but their implications to the gambler are often more complex than just winning or losing a predefined bet. Some terms put off the casual or traditional punter but it is simple. Here we try to explain. Remember that Spread Betting is volatile intentionally to give a wide range of possible outcomes that the Spread Firm can more readily judge than the average punter. You must be better than the average punter. Most of the time the results will be sensible but just occasionally they will be extreme. Always consider the extreme case when betting and bet within your limits. The world neatly splits spread betting into two categories; Sports Spread Betting and Financial Spread Betting.
Sports Spread Betting
Usually a closed system (not an infinite number of possible results), the trading firm will offer a spread price around what it thinks is the most likely result. So in cricket terms, if the firm thinks the "best fit" for Australian first innings total is 330, then they will offer 320-340. You can go low by selling at 320 or go high by buying at 340. If you sell at 320 for £1 and the result is 220 then you win £100. As the innings progresses this quote will change and it is possible to trade in running.

Go to the Sports Spread Betting page or look at a short glossary of terms.
Financial Spread Betting
Financial spread betting is very similar to sports spreads. It is actually simpler to understand, because you are wagering your money on an increase or decrease from the current price, rather than how far the end result will be above or below a given point. This is a product offered on most financial instruments. As an example, you might be £10 per point that a currency will increase in value. You use the offer price as this is a ‘buy’, and then deposit a percentage of the total exposure in order to hold the position. For every point the price moves in your favour, you win money, and vice versa. You can close the bet at any time in order to resolve it, but generally, brokers charge a fee for holding a position overnight.
Here is a short glossary of terms.

The Single Index - The simplest form of spread betting is the Single Index. What defines this type of Index is the fact that it is independent of all other scores and events. Let us take for example a cricket innings score. England are playing India in a test match and Hussain is quoted at 85-90 for his two innings combined run total. The final result (make-up) of this index will be his real combined two innings total.
[Example] You think he is strong and likely to score more than 90 so you Buy at 90 for £2.
Lets look at two cases:-
(1) Hussain scores 52 in the 1st innings and 78 in the 2nd innings. His total (the make-up) is 78+52 = 130. Your result here is (130-90) x £2 or another way of saying you win £80.
(2) Husaain scores 37 in the 1st innings and 0 in the 2nd innings. His total (the make-up) is 37. Your result here is a loss because he scored less than 90 and so is (90-37) x £2 or another way of saying you lost £106.

Heads-Up Index - With the Single Index, the make-up was determined by the actual result in real life. With two player indices the Spread Betting Firms often (not always) like to spice things up by awarding points for a particular result. For an example lets examine an 18-Hole match-up between two golfers in a tournament. This is an index that is resolved in one day.

Its Mickelson vs. Els in The Open on the first day. A spread firm quotes Mickelson/Els 0-3 and the rules are 10 points for a win and 3pts per stroke advantage in the actual score result. So if Mickelson beats Els by 3 strokes the make-up will be 10+(3x3) = 19. But if Els wins by 3 then the make-up will be
-10 - (3x3) = -19. Its negative because Mickelson is first quoted due to being deemed favourite by the firm. (You have to get used to negative numbers in Heads-Up events).
If you made a Buy at 3 for £5 (thinking Mickelson would win) and he won by 3, your win would be (19-3) x £5 or £80. If he lost by 3 strokes your loss would be the difference between 3 (the Buy price) and -19 (the make-up). So you lose 22 x £5, or -£110. (Mathematically its 3 - (-19) = 22)

Table A
World Cup Group
Team Quote
Argentina 13-15
England 10-12
Sweden 6-8
Nigeria 2-4
1st = 25pts, 2nd = 10pts
Multi Player Index - These are presented as several players/teams competing in their own seperate market. Sometimes, as in football World Cup groups, all the teams in the event are quoted. For the rest just a selection of teams/players are chosen, as in London football clubs in the Premier league. Regardless of these choices, spread firms allocate points to the finishing positions within the specific selections.

In the Table A on the right is the 2002 England World Cup qualifying group. Points will be given to the winner and runner-up, 3rd and 4th get nothing. You must use your judgement to see whether the point spread quotes are value to you as a punter. The abstract nature of this kind of index is what makes it hard to judge but the Spread Firms have developed ways to understand them. If you trust your judgement and think they are out of line then bet.
In this case, if you think Nigeria have no chance then your bet is Sell at 2 for £5 (maximum risk is if they come first you lose (25-2) x £5 = £115). You also think Argentina are certain to win the group (second will lose money on a Buy) so you Buy at 15 for £5.
Table B
Pos Team Quote
1 Sweden 25
2 England 10
3 Argentina 0
4 Nigeria 0

The finishing positions and final points allocated (the make-up) are shown in Table B. The Sell bet on Nigeria wins (2 - 0) x £5 = £10. The Buy bet on Argentina lost (15 - 0) x £5 = £75. The two bets combined lost £65.

Advice With this type of index it always a matter of judgement as to whether the quoted price represents value to you as a customer. Argentina may have looked favourite to win the group but would they win enough times if they were given 100 attempts, to let them average a score of more than 15 points. If yes then its correct to Buy, if they average in 13-15 zone then its neither a Buy or a Sell. If they would average less than 13, then its a Sell.
Glossary of Sports Spread Betting Terms

This does not mean purchase in the conventional sense. It means you are betting that the higher value of a quote will be exceeded.
e.g. Lara cricket innings runs 40-45. You buy at 45 in the belief that Lara is likely to score more than 45. Your win is his final score minus 45. Thus if he scores 98 your result is a win of (98-45) x £stake. If he was out for 28 your result is a loss of (45-28) x £stake. In these cases if you staked £1 you win £53 in the first and lose £17 in the second.

This does not mean selling something you already own in the conventional sense. It means you are betting the lower value of a quote will not be reached.
e.g Lara cricket innings runs 40-45. You think he is out of form and Sell at 40. If he is out for 2 you win (40-2) x £stake. But if bats well and hits 67 then you lose (67-40) x £stake. In these cases if you staked £1 you win £38 in the first and lose £27 in the second.

The difference between the Buy and Sell prices.
e.g. Lennox Lewis K.O. Rounds 4-5. The spread is 1.

Mid Point
The point value exactly between the Buy and Sell prices. This may be used as the make-up of a market when an event is stopped prematurely or there is a withdrawl.

The point value attributed to a player/team/fantasy-index at the conclusion of the event. This is the value to calculate your final win/loss with from your Buy or Sell position.

The Single Index
One player index, not dependent on another score.
e.g. One cricket batsman's total run score in an innings.

The Multiple Index
Several or many players/teams competing in an event chosen to create a market. The highest player/team at the conclusion is awarded the highest point value to calculate the resultant win/loss. The second place is awarded a lesser point value to calculate the win/loss. variable on the number in the market. There may be more places paid with lesser values.

Glossary of Financial Spread Betting Terms

As with traditional spread betting, there is a ‘buy’ and a ‘sell’ price. The lower of the two is the one that you ‘sell’ at, and this is known as the bid.

Gearing, also known as leverage is all about the potential profits and losses that can be made in relation to the initial deposit. With high gearing, a small outlay will allow much larger profits to made than normal, though this also works in reverse.

This is the higher of the two values in a spread betting price, and is therefore the one that you ‘buy’ at.

A pip is a percentage point, and generally refers to the fourth decimal, though not in every case.

This is the increment by which a price moves in your favour or against you.

This is simply the active bet which you have running.

Stop Order
A stop order or stop loss is a command you give to your broker, which closes your position if you begin to make a certain loss. It can also be used to lock-in profits.

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