How To Understand Betting Spreads
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How To Understand Betting Spreads
From Wikipedia, the free encyclopedia
^ The Sunday Times : "World Cup to kick off boom in spread betting"
^ "The perils of spread-betting" . The Times . Sep 20, 2007. Archived from the original on July 19, 2008.
^ "Gambling Commission - Home" . www.gamblingcommission.gov.uk .
^ Gambling Times: What are the Odds? Archived 2011-02-04 at the Wayback Machine
^ The Sunday Times: Spread betting
^ "Income Tax – Assessable income derivation of income – spread betting" . Australian Government ATO. 3 March 2010 . Retrieved 26 January 2011 .
^ Budworth, David. "Spread-betting fails investors in trouble" . thetimes.co.uk . Retrieved 11 October 2013 .
^ Pfanner, Eric. "Spread-bets on Cup venture into bizarre - Technology - International Herald Tribune" . The New York Times . Retrieved 11 October 2013 .
^ Rayman, Richard. "White Paper on Spread Betting" (PDF) . Cass Business School . Retrieved 11 October 2013 .
Spread betting is any of various types of wagering on the outcome of an event where the pay-off is based on the accuracy of the wager, rather than a simple "win or lose" outcome, such as fixed-odds (or money-line) betting or parimutuel betting .
A spread is a range of outcomes and the bet is whether the outcome will be above or below the spread. Spread betting has been a major growth market in the UK in recent years, with the number of gamblers heading towards one million. [1] Financial spread betting (see below) can carry a high level of risk if there is no "stop". [2] In the UK, spread betting is regulated by the Financial Conduct Authority rather than the Gambling Commission . [3]
The general purpose of spread betting is to create an active market for both sides of a binary wager , even if the outcome of an event may appear prima facie to be biased towards one side or the other. In a sporting event a strong team may be matched up against a historically weaker team; almost every game has a favorite and an underdog . If the wager is simply "Will the favorite win?", more bets are likely to be made for the favorite, possibly to such an extent that there would be very few betters willing to take the underdog.
The point spread is essentially a handicap towards the underdog. The wager becomes "Will the favorite win by more than the point spread?" The point spread can be moved to any level to create an equal number of participants on each side of the wager. This allows a bookmaker to act as a market maker by accepting wagers on both sides of the spread. The bookmaker charges a commission , or vigorish , and acts as the counterparty for each participant. As long as the total amount wagered on each side is roughly equal, the bookmaker is unconcerned with the actual outcome; profits instead come from the commissions.
Because the spread is intended to create an equal number of wagers on either side, the implied probability is 50% for both sides of the wager. To profit, the bookmaker must pay one side (or both sides) less than this notional amount. In practice, spreads may be perceived as slightly favoring one side, and bookmakers often revise their odds to manage their event risk.
One important assumption is that to be credited with a win, either team only needs to win by the minimum of the rules of the game, without regard to the margin of victory. This implies that teams in a winning position will not necessarily try to extend their margin—and more importantly, each team is only playing to win rather than to beat the point spread. This assumption does not necessarily hold in all situations. For example, at the end of a season, the total points scored by a team can affect future events such as playoff seeding and positioning for the amateur draft, and teams may "run up" the score in such situations. In virtually all sports, players and other on-field contributors are forbidden from being involved in sports betting and thus have no incentive to consider the point spread during play; any attempt to manipulate the outcome of a game for gambling purposes would be considered match fixing , and the penalty is typically a lifetime banishment from the sport; such is the lack of tolerance for manipulating the result of a sporting event for such purposes.
Spread betting was invented by Charles K. McNeil , a mathematics teacher from Connecticut who became a bookmaker in Chicago in the 1940s. [4] In North America , the gambler usually wagers that the difference between the scores of two teams will be less than or greater than the value specified by the bookmaker , with even money for either option. An example:
Spreads are frequently, though not always, specified in half-point fractions to eliminate the possibility of a tie, known as a push . In the event of a push, the game is considered no action , and no money is won or lost. However, this is not a desirable outcome for the sports book, as they are forced to refund every bet, and although both the book and its bettors will be even, if the cost of overhead is taken into account, the book has actually lost money by taking bets on the event. Sports books are generally permitted to state "ties win" or "ties lose" to avoid the necessity of refunding every bet.
Betting on sporting events has long been the most popular form of spread betting. Whilst most bets the casino offers to players have a built in house edge, betting on the spread offers an opportunity for the astute gambler. When a casino accepts a spread bet, it gives the player the odds of 10 to 11, or -110. That means that for every 11 dollars the player wagers, the player will win 10, slightly lower than an even money bet. If team A is playing team B, the casino is not concerned with who wins the game; they are only concerned with taking an equal amount of money of both sides. For example, if one player takes team A and the other takes team B and each wager $110 to win $100, it doesn't matter what team wins; the casino makes money. They take $100 of the $110 from the losing bet and pay the winner, keeping the extra $10 for themselves. This is the house edge. The goal of the casino is to set a line that encourages an equal amount of action on both sides, thereby guaranteeing a profit. This also explains how money can be made by the astute gambler. If casinos set lines to encourage an equal amount of money on both sides, it sets them based on the public perception of the team, not necessarily the real strength of the teams. Many things can affect public perception, which moves the line away from what the real line should be. This gap between the Vegas line, the real line, and differences between other sports books betting lines and spreads is where value can be found.
A teaser is a bet that alters the spread in the gambler's favor by a predetermined margin – in American football the teaser margin is often six points. For example, if the line is 3.5 points and bettors want to place a teaser bet on the underdog, they take 9.5 points instead; a teaser bet on the favorite would mean that the gambler takes 2.5 points instead of having to give the 3.5. In return for the additional points, the payout if the gambler wins is less than even money , or the gambler must wager on more than one event and both events must win. In this way it is very similar to a parlay . At some establishments, the "reverse teaser" also exists, which alters the spread against the gambler, who gets paid at more than evens if the bet wins.
In the United Kingdom , sports spread betting became popular in the late 1980s by offering an alternative form of sports wagering to traditional fixed odds , or fixed-risk, betting. With fixed odds betting , a gambler places a fixed-risk stake on stated fractional or decimal odds on the outcome of a sporting event that would give a known return for that outcome occurring or a known loss if that outcome doesn't occur (the initial stake). With sports spread betting, gamblers are instead betting on whether a specified outcome in a sports event will end up being above or below a ‘spread’ offered by a sports spread betting firm, with profits or losses determined by how much above or below the spread the final outcome finishes at.
The spread on offer will refer to the betting firm's prediction on the range of a final outcome for a particular occurrence in a sports event, e.g., the total number of goals to be scored in a football (US: soccer) match, the number of runs to be scored by a team in a cricket match or the number of lengths between the winner and second-placed finisher in a horse race.
The gambler can elect to ‘buy’ or ‘sell’ on the spread depending on whether they think the final outcome will be higher than the top end of the spread on offer, or lower than the bottom end of the spread. The more right the gambler is then the more they will win, but the more wrong they are then the more they can lose.
The level of the gambler's profit or loss will be determined by the stake size selected for the bet, multiplied by the number of unit points above or below the gambler's bet level. This reflects the fundamental difference between sports spread betting and fixed odds sports betting in that both the level of winnings and level of losses are not fixed and can end up being many multiples of the original stake size selected.
For example, in a cricket match a sports spread betting firm may list the spread of a team's predicted runs at 340 – 350. The gambler can elect to ‘buy’ at 350 if they think the team will score more than 350 runs in total, or sell at 340 if they think the team will score less than 340. If the gambler elects to buy at 350 and the team scores 400 runs in total, the gambler will have won 50 unit points multiplied by their initial stake. But if the team only scores 300 runs then the gambler will have lost 50 unit points multiplied by their initial stake.
It is important to note the difference between spreads in sports wagering in the U.S. and sports spread betting in the UK. In the U.S. betting on the spread is effectively still a fixed risk bet on a line offered by the bookmaker with a known return if the gambler correctly bets with either the underdog or the favourite on the line offered and a known loss if the gambler incorrectly bets on the line. In the UK betting above or below the spread does not have a known final profit or loss, with these figures determined by the number of unit points the level of the final outcome ends up being either above or below the spread, multiplied by the stake chosen by the gambler.
For UK spread betting firms, any final outcome that finishes in the middle of the spread will result in profits from both sides of the book as both buyers and sellers will have ended up making unit point losses. So in the example above, if the cricket team ended up scoring 345 runs both buyers at 350 and sellers at 340 would have ended up with losses of five unit points multiplied by their stake.
In addition to the spread bet, a very common "side bet" on an event is the total (commonly called the over/under or O/U ) bet. This is a bet on the total number of points scored by both teams. Suppose team A is playing team B and the total is set at 44.5 points. If the final score is team A 24, team B 17, the total is 41 and bettors who took the under will win. If the final score is team A 30, team B 31, the total is 61 and bettors who took the over will win. The total is popular because it allows gamblers to bet on their overall perception of the game (e.g., a high-scoring offensive show or a defensive battle) without needing to pick the actual winner.
In the UK, these bets are sometimes called spread bets, but rather than a simple win/loss, the bet pays more or less depending on how far from the spread the final result is.
Example: In a football match the bookmaker believes that 12 or 13 corners will occur, thus the spread is set at 12–13.
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 10/11 (4.55%) commission applied. Many Nevada sports books allow these bets in parlays , just like team point spread bets. This makes it possible to bet, for instance, team A and the over , and be paid if both
(Such parlays usually pay off at odds of 13:5 with no commission charge, just as a standard two-team parlay would.)
The mathematical analysis of spreads and spread betting is a large and growing subject. For example, sports that have simple 1-point scoring systems ( e.g., baseball , hockey , and soccer ) may be analysed using Poisson and Skellam statistics.
By far the largest part of the official market in the UK concerns financial instruments; the leading spread-betting companies make most of their revenues from financial markets, their sports operations being much less significant. Financial spread betting in the United Kingdom closely resembles the futures and options markets, the major differences being
Financial spread betting is a way to speculate on financial markets in the same way as trading a number of derivatives . In particular, the financial derivative Contract for difference (CFD) mirrors the spread bet in many ways. In fact, a number of financial derivative trading companies offer both financial spread bets and CFDs in parallel using the same trading platform.
Unlike fixed-odds betting, the amount won or lost can be unlimited as there is no single stake to limit any loss. However, it is usually possible to negotiate limits with the bookmaker:
Spread betting has moved outside the ambit of sport and financial markets (that is, those dealing solely with share, bonds and derivatives), to cover a wide range of markets, such as house prices. [5] By paying attention to the external factors, such as weather and time of day, those who are betting using a point spread can be better prepared when it comes to obtaining a favorable outcome. Additionally, by avoiding the favourite-longshot bias , where the expected returns on bets placed at shorter odds exceed that of bets placed at the longer odds, and not betting with one's favorite team, but rather with the team that has been shown to be better when playing in a specific weather condition and time of day, the possibility of arriving at a positive outcome is increased.
In the UK and some other European countries the profit from spread betting is free from tax. The tax authorities of these countries designate financial spread betting as gambling and not investing, meaning it is free from capital gains tax and stamp duty , despite the fact that it is regulated as a financial product by the Financial Conduct Authority in the UK. Most traders are also not liable for income tax unless they rely solely on their profits from financial spread betting to support themselves. The popularity of financial spread betting in the UK and some other European countries, compared to trading other speculative financial instruments such as CFDs and futures is partly due to this tax advantage. However, this also means any losses cannot be offset against future earnings for tax calculations.
Conversely, in most other countries financial spread betting income is considered taxable. For example, the Australian Tax Office issued a decision in March 2010 saying "Yes, the gains from financial spread betting are assessable income under section 6-5 or section 15-15 of the ITAA 1997". [6] Similarly, any losses on the spread betting contracts are deductible. This has resulted in a much lower interest in financial spread betting in those countries.
Suppose Lloyds Bank 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 , or "rolling daily bets" as they are referred to by the spread betting companies.
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 (if Lloyds Bank went to 0p) could be up to £4110, so this is as risky as buying 1000 of the shares normally.
If a bet goes overnight, the bettor is charged a financing cost (or receives it, if the bettor is shorting the stock). This might be set at LIBOR + a certain percentage , usually around 2-3%.
Thus, in the example, if Lloyds Bank are trading at 411p, then for every day I keep the bet open I am charged [taking finance cost to be 7%] ((411p x 10) * 7% / 365 ) = £0.78821 (or 78.8p)
On top of this, the bettor needs an amount as collateral in the spread-betting account to cover potential losses. Usually this is either 5 or 10% of the total exposure you are taking on but can go up to 100% on illiquid stocks. In this case £4110 * 0.1 or 0.05 = £411.00 or £205.50
If at the end of the bet Lloyds Bank traded at 400-401p, I need to cover that £4110 – £400*10 (£4000) = £110 difference by putting extra deposit (or collateral) into the account.
The punter usually receives all dividends and other corporate adjustments in the financing charge each night. For example, suppose Lloyds Bank goes ex-dividend with dividend of 23.5p. The bettor receives that amount. The exact amount received varies depending on the rules and policies of the spread betting company, and the taxes that are normally charged in the home tax country of the shares.
According to an article in The Times dated 10 April 2009, approximately 30,000 spread bet accounts were opened in the previous year, and that the largest study of gambling in the UK on behalf of the Gambling Commission found that serious problems developed in almost 15% of spread betters compared to 1% of other gambling. [7] A report from Cass Business School found that only 1 in 5 gamblers ends up a winner. [8] As noted in the report, this corresponds to the same ratio of successful gamblers in regular trading. [9] Evidence from spread betting firms themselves actually put this closer to being 1 in 10 traders as being profitable. [ citation needed ]
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Spread betting is one of the most complex forms of betting. At least it seems that way until you start.
The thing that puts off your average punter is that it is extremely volatile and the potential for loss is greater than normal betting. It is for this reason that you need to understand spread betting and how it works before you get too heavily involved.
We suggest that if you start spread betting, then you are a little more knowledgeable about betting than average.
We’ll touch on financial spread betting in this post as it’s the most popular form, but we’ll focus on how spread betting works in sports.
Spread betting is hugely popular, especially among people who work in or have an interest in finance. This is because it allows easy access to speculate on the movement of financial markets. This simplified form of betting on financial markets has meant an increase in popularity for spread betting.
The variables are quite high when spread betting on financial markets. The volatility of these markets means that, without paying due care, you can lose thousands in the blink of an eye. Your investment capital can go further, but you can also lose more than you initially deposited.
It’s important to understand the risks involved and have suitable strategies in place to manage this.
Whilst financial spread betting is the most popular form of this kind of betting, it can also be done in the sports world.
The way spread betting differs from traditional betting is that you’re betting on the movement of the market rather than an event. With traditional betting, you’re betting a set amount on the market to have a defined result at a set price. For example: you’re betting on a spread for a Premier League team’s total points and the spread is set at 70. You’ll bet a set amount per point that you think their final tally will be above or below the spread.
So, if you stake £5 per point that they will achieve a higher points tally than the spread, you’ll win £5 for every point over. However, should they get a lower points tally than 70, you’ll lose £5 for every point they miss that target by.
This means that there’s the potential for high wins. However, it also means that your potential for loss can be quite high should the team fail to hit this target.
There is a mechanism that you can build into your bet to minimise losses. It’s called a stop loss. This is the point that you define in your bet that you want to cancel and take a loss.
Let’s look at how that works: you buy on a spread but the share price of the company you bought dramatically takes a hit. Your bet will be closed out at your defined price meaning you can’t lose any more than you’ve set.
The best way to answer the question ‘how does spread betting work?’ is to look at football spread betting. It’s a sport that everyone understands, and therefore it makes it easy to compare spread betting to normal betting in football.
Let’s take a more detailed look at the example we touched on earlier.
Points betting over a season is one of the most popular spread bets. The prediction from the spread betting company may look something like this:
Manchester United points: 76 – 77.5
This means they are predicting Manchester United may finish on either 76 or 77 points. The lower one is the selling price. The higher one is the price you buy at.
If you buy the spread at £10 per point, and Manchester United finish on 84 points, you will win £65. That is £10 per point and £5 for the half a point.
However if Manchester United finished on 75 points, then you would have lost a total of £25.
Should you sell Manchester United points, you’re betting that they will finish with lower than 76.
If you bet at £10 per point, and they finish on 70, then you will win £60. However, should they finish on 80 points then you lose £40.
But perhaps the long term markets take a little bit too long for you, and you’d prefer to bet per match. You can do that with spread betting too.
One of the most popular match markets to bet on is player goal minutes. The spread for a star striker will be set at something like 37 – 40.
At the end of the match, the times they scored the goals are added up. If you buy the spread, it means you’re hoping the total points are more than 40. For example, in the following situation:
Harry Kane Player Goal Minutes: Sell 37 – Buy 40
Then he scores a goal on the 15th minute and the 45th minute. These obviously add up to 60 minutes. If you bought for £10 per point at 40, then you would win £200. However, if he only scored in the 5th minute then unfortunately, your luck is out. You would lose £350. Which shows perfectly the amount of risk involved with spread betting.
There aren’t as many spread betting strategies as there are in other types of betting. At least not in the same way. But there are a few handy hints you can follow to make the process a little bit easier for yourself.
Firstly, did you know that you can close out your bets in-play for many spread betting markets?
This is because the spread moves in-play, based on what is happening during the game.
Let’s say you bet on a Total Goal Minutes market and the spread was 167 SELL – 177 BUY . You bought the Total Goal Minutes thinking there would be a lot of goals in the match. But there were a few goals in the 20th minute of the game, to give you 50 points. The line would move to reflect this.
Say it moves to 200. This gives you an opportunity to get out of your bet and make a profit. By selling at this price, you’ll make an automatic profit.
To give you an idea of what types of markets you can bet on when you’re spread betting, here’s a list of the most common football markets, along with a brief explanation of how they work.
A supremacy bet is where the spread betting firm predict how dominant one team will be over another. This is where they set a spread based on how many goals a team will beat another by.
If you feel that Tottenham will win, you can buy them at 0.4 goals for a stake of £10.
When Tottenham win with a 5-1 scoreline, their supremacy is 4 goals. This means the actual result was +3.6 and you won £36.
This is where the spread predicts the time of the first goal in the match. They may set a spread of 19-22, and favour the first goal being scored in the first half.
However, expecting a quiet first half, you buy this for £10 per point. Eventually, during the match, the first goal is scored in the 32nd minute.
Given the 10 minute discrepancy, you win 10x your £10 stake giving you a profit of £100.
Total corners is an interesting spread betting market and gives you another angle to consider. The spread states how many corners they think will be taken by both teams during the match.
If a lot of corners are expected, the line might be set at 14.5 – 15 corners. You may feel that this is too high so decide to sell at 14.5 for a stake of £10.
But bad news: during the game, records were broken and there were 35 corners during the match. This would give you a whopping loss of £205. Ouch!
This is one of the more fun spread betting markets. It takes a lot of research and a big sprinkling of luck to have success with this market.
At the end of the game, the shirt numbers of all the goalscorers in the market are added together.
For argument’s sake, the spread betting firm may set the spread at 52-56.
Noticing the star striker likes to stand out and has the number 88 on his shirt, you buy at £10 per point.
However, disaster strikes, and after many missed chances, the game finishes 0-0. You run up a loss of £560.
Spread betting can be exciting because the ceiling for profit is quite high. However, this is why some people can also get carried away.
So during your spread betting journey, make sure you follow these rules to keep your losses to a minimum.
While spread betting can be fun, unfortunately, it can also be quite costly. It’s hard to get serious with spread betting and follow any real strategy. Unless you’re well into the financial markets and really know your stuff. And that can take A LOT of time and effort…
Something which doesn’t require as much time and effort, though, is matched betting. Now, it’s nowhere near as on-the-edge-of-your-seat as spread betting, but it’s sure as hell a lot more profitable. And the profits you do make from matched betting are completely tax-free.
Bookmakers are in a constant fight to try and win customers due to the never ending growth of the industry. They offer free bets and other promotions to attract sign ups. Matched betting is a process where you can turn these free bet offers into real money. Money that goes from the bookmakers’ pockets, straight into your account.
The great thing is that anyone can do it, from university students to stay at home parents. You don’t have to be a sports fan. Hoards of people are profiting from this and earning anywhere from a few hundred to a few thousand pounds within the first few months.
Why waste money betting when you can win it? To find out more about matched betting, download our free introductory guide.
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