Spread betting is in the investment industry the use of speculation to win or lose. This is usually quantified in monetary terms. The pay off is determined by the accuracy of the wager and not on the simple basis of losing or winning. Spread betting involves high risk followed by equally high profits for accurate speculation. The amount initially bet on could be far in excess of the original amount placed. In the UK spread, betting is not regarded as a form of gambling and thus it is regulated by the financial services authority. Simply, in the UK, this is a legitimate business activity.
The idea of spread betting was initially invented by Charles K. McNeil, who was a mathematics teacher. McNeil later became a bookmaker in Chicago at around the 1940’s.In the United Kingdom the idea became popular at around 1980’s. Despite being around for quite sometime, it has only grown rapidly from the year 2000.
In sports where two teams are competing, there is always a favorite team and the weaker team, thus most bets will fall for the stronger of the two teams. A gambler may decide to take chances on the weaker team mostly referred to as the underdog. However, a bet can be put on the favorite by speculating whether or not the favorite team will surpass a speculated point spread. The point can be put at any level so that it pulls enough participants to either side of the spread. A bookmaker charges a commission to accept wager from either sides of the point. The bookmaker is not concerned about the outcome of the game since he gets his profit from the commission charged, however this only works if the total amount wagered is almost equal on both sides.
When choosing to do financial spread betting it is important to know that the loss or profit can out-match the original bet.For example:
If two teams A and B are playing against each other;
A bookmaker may give an advantage of 30 points on the winning team. That is the winning team will have 30 points.
A gambler will use his speculation to bet either below this or above this placed point.
The gambler believes that the points will be less than 30 so he places a bet of $20. In the event that the points are indeed, less than 30 at the end of the game then the difference multiplied by the bet will be what the gambler will take home. If the points are 25 then the gambler gets $20*5 points thus he gets $100.
Sometimes the margins might be considerably big thus; the gamblers will choose to put limits or stops on a certain bet. This controls how much he loses. When a stop is put on a bet, the gambler pays a cost. It is always advisable that bets with small margins are placed this will prevent the investor from suffering huge losses.
The mathematics of spread betting is a growing field of analysis and different methods are used to calculate the eventuality. This will depend on the game e.g. hockey baseball and soccer. In this case possoin and skellam distribution analysis are used.
For one game different parameters can be bet on, thus a gambler might lose on one bet but gain on another.For instance in a football game a gambler might lose on the score bet, however he might gain o another bet like the number of corners that are going to be awarded in the game. This gives the gambler satisfaction and not complete loss on his bet.
Spreads are usually put in place to create a favorable and almost equal number of wagers thus the probability on both sides is usually put at 50% chance. The bookmaker however pays an amount less than the amount given to any side or to both sides they will also revise their odds so that they can manage the risk involved. The gambler usually speculates on the outcome that the bookmaker has placed. The value of the difference between scores of two teams will be either greater or less than that placed by the bookmaker and thus the gamblers will weigh his options and make a bet.