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Encyclopedia > Spread betting

Spread betting is a term used to describe various types of wagering on the outcome of an event, where the pay-off is based on the precision of the wager, rather than a simple binary outcome (win or loss). A bet is made against a 'spread' (or index), on whether the outcome will be above or below the spread. Image File history File links Circle-question-red. ... Gambling (or betting) is any behavior involving the risk of money or valuables on the outcome of a game, contest, or other event in which the outcome of that activity is partially or totally dependent upon chance. ...

Contents

Purpose

The general purpose of the spread is to create an active market for both sides of a wager, even if, a priori, the expected outcome of the event may be tilted in favour of one side or the other. In a sporting event, for example, a good team may be matched up against a bad team. Persons wagering on the event would likely gravitate towards the better team, to such an extent that there would be very few, perhaps none, wagering on the lesser team. A priori is originally a Latin phrase meaning from the former or from what comes before. However, several different uses of the term have developed in English: A priori (law) - adj. ...


The use of a point spread evens out the market so that there are an equal number of participants on each side of the wager. This allows a sports book to make a market, by accepting wagers on both sides of the spread. The sports book charges a commission and acts as the counterparty for each bettor. As long as the number of participants on each side is roughly equal, the sports book does not need to be concerned with the actual outcome; its profits instead come from the commissions. Sports betting is the general activity of predicting sports results by making a wager on the outcome of a sporting event. ...


Spreads in sports wagering

Spread betting was invented by Charles K. McNeil, a math teacher from Connecticut who became a bookmaker in Chicago in the 1940s [1]. The concept was exported to the United Kingdom in the 1980s. In North America, the bettor usually bets that the difference in the scores of two teams will be less than or greater than a value specified by the bookmaker. For example, if a bettor places a bet on an underdog in an American football game when the spread is 3.5 points, he is said to take the points; he will win his bet if the underdog's score plus 3.5 points is greater than the favourite's score. If he had taken the favourite, he would have been giving the points and would win if the favourite's score minus 3.5 points was greater than the underdog's score. Charles K. McNeil (died 1981) is credited with inventing the point spread in sports gambling. ... This article or section does not cite any references or sources. ... This article does not cite any references or sources. ... A bookmaker, bookie or turf accountant, is an organization or a person that takes bets and may pay winnings depending upon results and, depending on the nature of the bet, the odds. ... United States simply as football, is a competitive team sport that is both fast-paced and strategic. ...


Spreads may be specified in half-point fractions to avoid ties, or pushes. The winner of a North American spread bet wins the amount that he has bet, while a losing bettor loses the amount wagered plus the bookmaker's commission, which is commonly known as the vigorish or vig, and is usually 10 percent of the original wager; in the United Kingdom both sides are held at odds of 9-10. In North American betting a push is treated as if no bet at all had been made, while in the United Kingdom "dead heat" rules apply, resulting in a net loss of £5 on a £100 wager due to the 9-10 odds of the proposition. Vigorish, or simply vig, or juice, is the amount charged by a bookmaker for his services. ...


If a key player on a side is marginally injured and may or may not play, the "sports book" — or establishment that handles the bets — may declare the game off-limits to bettors (by not quoting any spread at all on it), or may "circle" the game; in the latter scenario, lower maximum amounts for each bet are enforced (typically $5,000 instead of the $25,000 limit observed at most Las Vegas sports books) and certain specialty wagers, such as "teasers," are banned on either side in the game. (A "teaser" is a bet that alters the spread in the bettor's favor by a predetermined margin, often six points - for example, if the line is 3.5 points and the bettor wants to place a "teaser" bet on the underdog, he takes 9.5 points instead; a teaser bet on the favourite would mean that the bettor takes 2.5 points instead of having to give the 3.5. In return for the additional points, the payout if the bettor wins is less than even money. At some establishments, the "reverse teaser" also exists, which alters the spread against the bettor, who gets paid off at more than even money if the bet wins.) For further information, see Las Vegas metropolitan area and Las Vegas Strip. ... Even money is a gambling term describing a wagering proposition in which the odds are even -- in other words, if one were to lose the bet, one stood to lose the same amount of money that the winner of the bet would win (less, of course, the vigorish or juice...


Example: In a football match between Liverpool and Everton the spread for corners is 12-13, the index firm believes there will be 12 or 13 corners in total during the match. A bettor approaches the firm with the belief that there will be more than 13 corners during the game, the bettor 'buys' at £25 a point at 13. If the final total of corners is 16 the bettor has won, receiving 3 x £25. If the final total of corners is 10, the bettor loses 3 x £25. A 'sell' transaction is similar except made against the bottom value of the spread. Often there is live pricing, which changes the spread during the course of an event allowing a profit to be increased or a loss minimized. A player (wearing the red kit) has penetrated the defence (in the white kit) and is taking a shot at goal. ...


In North American sports betting many of these wagers would be classified as over-under (or, more commonly today, total) bets rather than spread bets. However, these are for one side or another of a total only, and do not increase the amount won or lost as the actual moves away from the bookmaker's prediction. Instead, over-under or total bets are handled much like point-spread bets on a team, with the usual 10% commission applied. Many Nevada sports books will allow these bets to be used in parlays, just like team point-spread bets, making it possible to bet, for instance, "the Packers and the over," and be paid if both the Packers "cover" the point spread and the total score is higher than the book's prediction. (Such parlays usually pay off at odds of 13:5 with no "vig," just as a standard two-team parlay would.) A parlay or accumulator is a single bet that links together two or more individual wagers and is dependent on all of those wagers winning together. ... City Green Bay, Wisconsin Team colors Dark Green, Maize, and White Head Coach Mike McCarthy Owner 111,967 stockholders (Green Bay Packers Foundation) Chairman Bob Harlan General manager Ted Thompson Fight song Go! You Packers! Go! League/Conference affiliations Independent (1919-1920) National Football League (1921–present) Western Division (1933...


In 2004 Cantor Fitzgerald launched the spread betting exchange Cantor Spreadfair which matches up spread bettors opposing views and allows them to bet with each other. This removal of the faceless bookmaker allows clients to bet at the spread size and monetary level that they request, and in turn this creates tighter spread magin which in turn allows users to lose less and win more than with the non exchange spread betting firms.


The mathematical analysis of spreads and spread betting is a large and growing subject. For example, sports which have simple 1 point scoring systems (e.g. baseball, hockey, and soccer) may be analysed using Poisson and Skellam statistics. A view of the playing field at Busch Memorial Stadium, St. ... Ice hockey, known simply as hockey in areas where it is more common than field hockey, is a team sport played on ice. ... Football is a ball game played between two teams of eleven players, each attempting to win by scoring more goals than their opponent. ... In probability theory and statistics, the Poisson distribution is a discrete probability distribution that expresses the probability of a number of events occurring in a fixed period of time if these events occur with a known average rate, and are independent of the time since the last event. ... The Skellam distribution is the discrete probability distribution of the difference N1 − N2 of two correlated or uncorrelated random variables N1 and N2 having Poisson distributions with different expected values μ1 and μ2. ...


Spreads in the financial industry

By far the largest part of the official market in the UK concerns financial instruments; the leading spread betting companies (IG Index/IGMarkets, City Index, Cantor Index, Financial Spreads, CMC being amongst them) either make all their revenues from financial markets or have sports operations dwarfed by the financial side. For example, in the figures for the second half of 2006, the income derived from financial spread betting at IG Group, the largest of the companies, was £29.3m, compared to £3.8m in sports. Financial spread betting in the United Kingdom closely resembles the futures and options markets, with the major differences consisting in (a) the fact that the 'charge' occurs through a wider bid-offer spread and (b) the different tax status of spread-betting compared to exchange instruments (c) the flexibility of spread betting, which, not limited to exchange hours or definitions, can create new instruments relatively easily (e.g. individual stock futures), trade 24-hours, guaranteed stop losses and (d) the trading being off-exchange, with the contract existing directly between the market-making company and the client, rather than exchange-cleared.


Unlike fixed odds betting the amount won or lost can be very large, as there is no single stake to limit the maximum losses. However, it is usually possible to place a "stop loss" with the bookmaker, automatically closing the bet if the value of the spread moves against the better by a specified amount. "Stop wins" are the opposite -- closing the bet when the spread moves in a better's favour by a specified amount. A bookmaker, bookie or turf accountant, is an organization or a person that takes bets and may pay winnings depending upon results and, depending on the nature of the bet, the odds. ...


Financial Spread Bet Example

Suppose Lloyds TSB is trading on the market at 410p bid, and 411p offer. A spread betting company is also offering 410-411p. We use cash bets with no definite expiry. Lloyds TSB Group plc is a group of financial services companies, based in the United Kingdom, which was created in 1995 following the merger of the TSB Group and the Lloyds Bank Group. ...


For example, if I think the share price is going to go up, I might bet £10 a point (i.e. £10 per penny the shares moves) at 411p. We use the offer price since I am "buying" the share (betting on its increase). Note that my total loss could be up to £4110, so this is as risky as buying 1000 of the shares normally.


If a bet goes overnight, the better is charged a financing cost (or receives it, if the better is shorting the stock). This might be set at LIBOR + a certain percentage, usually around 2/3%.


Thus, in the example, if Lloyds TSB are trading at 415p, then for every day I keep the bet open I am charged (taking finance cost to be 7%) (415p x 10 ) * 7% /365) = £0.7958.


On top of this, the better needs an amount in his spread betting account to cover the bet. Usually this is either 5 or 10% of the total exposure you are taking on. In this case £4150 * 0.1 or 0.05 = £415.00 or £ 207.50


If at the end of the bet Lloyds TSB traded at 400p, I need to cover that £4150 - £400*10(£4000) = £150 difference by putting extra deposit (or margin) into the account.


The better will usually receive all dividends and other corporate adjustments in the financing charge each night. For example, suppose Lloyds TSB goes ex-dividend with dividend of 23.5p. The better will receive that amount.


Source

  • Incademy
  • Investopedia

See also

An Asian Handicap is a sports betting term used to describe spread betting in football (soccer). ... A betting exchange is a p2p gambling website acting as a broker between parties for the placement of bets. ... A bookmaker, bookie or turf accountant, is an organization or a person that takes bets and may pay winnings depending upon results and, depending on the nature of the bet, the odds. ... Parimutuel betting (from the French language: pari mutuel, mutual betting) is a betting system in which all bets of a particular type are placed together in a pool; taxes and a house take are removed, and payoff odds are calculated by sharing the pool among all placed bets. ... This article or section does not adequately cite its references or sources. ... Sports betting is the general activity of predicting sports results by making a wager on the outcome of a sporting event. ... In finance, a spread trade refers to the act of buying one security or futures contract and selling another related one, in an attempt to profit from the change in the price difference between the two. ... This article or section does not cite any references or sources. ...

Further Reading

  • Malcolm Pryor (2007). The Financial Spread Betting Handbook. Harriman House. ISBN 189-7597-93-2. 

  Results from FactBites:
 
Spread Betting | Guide to Spread Betting (0 words)
Financial Spread betting is one of the most exciting and fastest growing ways of speculating on the movement of an underlying share or index and for many investors it has become a flexible and cost efficient alternative to trading ordinary shares.
Spread betting is traded on margin, which means that you simply need to place a deposit when you open a trade of only a % of the positions total value.
Spread betting companies often offer two types of account a deposit account where you have to have enough money to cover the notional trading requirement on your account or a credit account where by you have a set level of credit against the notional trading requirement.
Spread betting - T2W Traderpedia (704 words)
Spread betting differs from fixed odds conventional betting in that the outcome of the bet is not a binary event, i.e win a fixed amount or lose the entire stake, which means profits and losses can theoretically be unlimited and the open profit or loss will fluctuate continually until the bet is closed.
A spread bettor buys at one end of the spread (the offer price) and sells at the other (the bid price), and if the spread has moved far enough in the right direction between the time he buys and sells (or sells and buys, as he may bet on either direction), he makes money.
Spread betting profits are almost always tax-free (and losses non-tax-deductible) although in some cases if profits constitute a professional trader's only source of income then the Inland Revenue may choose to make the trader liable to income or capital gains tax.
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