Spread Probability Betting

Spread Probability Betting

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Spread betting allows traders to bet on the direction of a financial market without actually owning the underlying security. Spread betting is sometimes promoted as a tax-free, commission-free activity that allows investors to speculate in both bull and bear markets, but this remains banned in the U.S. Like stock trades, spread bet risks can be mitigated using stop loss and take profit orders.

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Spread betting refers to speculating on the direction of a financial market without actually owning the underlying security.

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Options are financial derivatives that give the buyer the right to buy or sell the underlying asset at a stated price within a specified period.

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Quadruple witching refers to a date on which stock index futures, stock index options, stock options, and single stock futures expire simultaneously.

A bull spread is a bullish options strategy using either two puts, or two calls with the same underlying asset and expiration.

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Spread betting is a derivative strategy, in which participants do not own the underlying asset they bet on, such as a stock or commodity. Rather, spread bettors simply speculate on whether the asset's price will rise or fall, using the prices offered to them by a broker.

As in stock market trading, two prices are quoted for spread bets—a price at which you can buy (bid price) and a price at which you can sell (ask price). The difference between the buy and sell price is referred to as the spread. The spread-betting broker profits from this spread, and this allows spread bets to be made without commissions, unlike most securities trades.

Investors align with the bid price if they believe the market will rise and go with the ask if they believe it will fall. Key characteristics of spread betting include the use of leverage, the ability to go both long and short, the wide variety of markets available, and tax benefits.

If spread betting sounds like something you might do in a sports bar, you're not far off. Charles K. McNeil, a mathematics teacher who became a securities analyst—and later a bookmaker—in Chicago during the 1940s has been widely credited with inventing the spread-betting concept. But its origins as an activity for professional financial-industry traders happened roughly 30 years later, on the other side of the Atlantic. A City of London investment banker, Stuart Wheeler, founded a firm named IG Index in 1974, offering spread betting on gold. At the time, the gold market was prohibitively difficult to participate in for many, and spread betting provided an easier way to speculate on it.

Despite its American roots, spread betting is illegal in the United States.

Let's use a practical example to illustrate the pros and cons of this derivative market and the mechanics of placing a bet. First, we'll take an example in the stock market, and then we'll look at an equivalent spread bet.

For our stock market trade, let's assume a purchase of 1,000 shares of Vodafone (LSE: VOD ) at £193.00. The price goes up to £195.00 and the position is closed, capturing a gross profit of £2,000 and having made £2 per share on 1,000 shares. Note here several important points. Without the use of margin, this transaction would have required a large capital outlay of £193k. Also, normally commissions would be charged to enter and exit the stock market trade. Finally, the profit may be subject to capital gains tax and stamp duty.

Now, let's look at a comparable spread bet. Making a spread bet on Vodafone, we'll assume with the bid-offer spread you can buy the bet at £193.00. In making this spread bet, the next step is to decide what amount to commit per "point," the variable that reflects the price move. The value of a point can vary.

In this case, we will assume that one point equals a one pence change, up or down, in the Vodaphone share price. We'll now assume a buy or "up bet" is taken on Vodaphone at a value of £10 per point. The share price of Vodaphone rises from £193.00 to £195.00, as in the stock market example. In this case, the bet captured 200 points, meaning a profit of 200 x £10, or £2,000.

While the gross profit of £2,000 is the same in the two examples, the spread bet differs in that there are usually no commissions incurred to open or close the bet and no stamp duty or capital gains tax due. In the U.K. and some other European countries, the profit from spread betting is free from tax.

However, while spread bettors do not pay commissions, they may suffer from the bid-offer spread, which may be substantially wider than the spread in other markets. Keep in mind also that the bettor has to overcome the spread just to break even on a trade. Generally, the more popular the security traded, the tighter the spread, lowering the entry cost .

In addition to the absence of commissions and taxes, the other major benefit of spread betting is that the required capital outlay is dramatically lower. In the stock market trade, a deposit of as much as £193,000 may have been required to enter the trade. In spread betting, the required deposit amount varies, but for the purpose of this example, we will assume a required 5% deposit. This would have meant that a much smaller £9,650 deposit was required to take on the same amount of market exposure as in the stock market trade.

The use of leverage works both ways, of course, and herein lies the danger of spread betting. As the market moves in your favor, higher returns will be realized; on the other hand, as the market moves against you, you will incur greater losses. While you can quickly make a large amount of money on a relatively small deposit, you can lose it just as fast.

If the price of Vodaphone fell in the above example, the bettor may eventually have been asked to increase the deposit or even have had the position closed out automatically. In such a situation, stock market traders have the advantage of being able to wait out a down move in the market, if they still believe the price is eventually heading higher.

Despite the risk that comes with the use of high leverage, spread betting offers effective tools to limit losses .

Risk can also be mitigated by the use of arbitrage, betting two ways simultaneously.

Arbitrage opportunities arise when the prices of identical financial instruments vary in different markets or among different companies. As a result, the financial instrument can be bought low and sold high simultaneously. An arbitrage transaction takes advantage of these market inefficiencies to gain risk-free returns.

Due to widespread access to information and increased communication, opportunities for arbitrage in spread betting and other financial instruments have been limited. However, spread betting arbitrage can still occur when two companies take separate stances on the market while setting their own spreads.

At the expense of the market maker, an arbitrageur bets on spreads from two different companies. When the top end of a spread offered by one company is below the bottom end of another’s spread, the arbitrageur profits from the gap between the two. Simply put, the trader buys low from one company and sells high in another. Whether the market increases or decreases does not dictate the amount of return.

Many different types of arbitrage exist, allowing for the exploitation of differences in interest rates, currencies, bonds, and stocks, among other securities. While arbitrage is typically associated with risk-less profit, there are in fact risks associated with the practice, including execution , counterparty, and liquidity risks. Failure to complete transactions smoothly can lead to significant losses for the arbitrageur. Likewise, counterparty and liquidity risks can come from the markets or a company’s failure to fulfill a transaction.

Continually developing in sophistication with the advent of electronic markets, spread betting has successfully lowered the barriers to entry and created a vast and varied alternative marketplace.

Arbitrage, in particular, lets investors exploit the difference in prices between two markets, specifically when two companies offer different spreads on identical assets.

The temptation and perils of being overleveraged continue to be a major pitfall in spread betting. However, the low capital outlay necessary, risk management tools available, and tax benefits make spread betting a compelling opportunity for speculators.

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Do you know how to bet the spread? The points spread or line is one of the most popular bets, especially on football and basketball games. In this article, you'll find the basics of spread betting, including an explanation of American odds.
As sports betting takes off nationwide, many beginners are interested in the various types of bets available, like spread betting. Along with moneylines, propositions, and over/unders, spread betting is one of the staples of wagering on your favorite games. While hockey and baseball wagering have spread betting, it features more prominently in football and basketball.
When the spread was invented and applied to football it helped the game rise to its prominence. Now, spread bets on football games are so ubiquitous, you often hear the broadcasters reference the line.
A points spread bet is a wager that a bettor places on one team of a two-team matchup. Instead of simply picking the winning team (a moneyline bet), the bettor chooses whether or not their team covers the spread. The spread itself is an artificial creation that attempts to adjust for each team’s relative strength.
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The spread or line for a particular game indicates which team is the favorite and by how much . For example, consider a hypothetical Sunday Night Football matchup between the Los Angeles Rams and Buffalo Bills. To bettors and fans, the Rams are considered the better team. But how is this indicated by a point spread?
Professionals in Las Vegas and elsewhere will “set a line” between the two teams. In this instance, the Rams may be favored by 3.5 points. Though football teams cannot score half points, the .5 is often used in spread betting to avoid a push where neither side of the bet is victorious.
As 3.5-point favorites over the Bills, the Rams need to win by four or more points to cover the spread. The Rams could win the game 24-22 but not cover the spread. Any game result where the Bills either win or lose by three or fewer points means Buffalo covered the spread.
On a spread bet for this game, if you picked the Rams to cover, you need them to win by at least four points to win your wager. Likewise, if you selected the Bills to cover the spread, all you need is for them to win the game or lose by fewer than four points.
Sticking to the same hypothetical Rams-Bills matchup, the spread number is only part of a wager on the line for the game. The other component indicates who is the favorite in the matchup. This is where a + and – signs in front of a set of three digits comes into play.
Strictly speaking about a points spread bet, the + and – will tell a bettor who is getting points versus who is giving points . Though the + sign indicates a positive, for spread betting the team with the + sign attached to their number is the underdog .
Conversely, the team with the minus sign is favored to win the game. So, in the hypothetical above, the Rams would be listed at -3.5, with the Bills at +3.5.
A simple way to think about the plus and minus signs is to add or subtract the line from the team’s score during the game. As above, if the Rams win the game 24-22, they do not cover the 3.5-point spread. You can deduce this by either adding the 3.5 to Buffalo’s score or subtracting 3.5 from the Rams. Hence, the plus and minus. Once the simple math is done, you’ll see which team covered the spread.
The plus sign indicates the favored team is giving points to its opponents. Essentially, for spread bettors, the game started with a score of 3.5 Bills – 0 Rams. That’s because the Bills are getting points against the spread. At any point during the game, you can know which team is covering by either adding 3.5 points to the Bills’ score or deducting 3.5 from the Rams’.
It can be challenging for most new bettors to separate winning the game from covering the spread. The opposite of covering the spread does not mean your team did not win, only that you lost your bet. As shown above, as 3.5-point favorites the Rams can beat the Bills but not cover the spread.
The Rams may have won the Super Bowl, but the Bengals actually covered the spread. (AP Photo/Doug Benc)
Because the spread is used to set the teams on an even playing field, covering the spread means your team overachieved. Hence the phrase “good teams win but great teams cover.” Betting the spread means that you beat expectations. Often, because professional line-makers are good at their jobs, a team only covers by a half of a point, aka “the hook.” If the Rams beat the Bills 28-24, they would not only win the game, but cover the 3.5 point spread as well.
Teams that do not cover the spread failed to live up to expectations, at least in the mind of line-makers. However, the point spread is designed to attract even betting on both sides of the game. While typically this tracks the relative strength of the opponents, sometimes linemakers will shift a line based on other factors, like home-town allegiance or national following.
After the line number and the plus/minus sign, there is one further component of spread betting beginners need to understand. That is the triple digit number attached to the spread. This system is referred to as American Odds and refers to the return offered by a wager.
Typically, point spreads differ from moneyline betting because the spread offers a -110 return on either side of the game. Here, the minus sign indicates that you will receive less than you put at risk if you win your wager. A -110 is standard for point spreads in American Odds and means that you need to risk $110 to win $100. If the line were to say even, that indicates that you will win $100 for every $100 risked. Conversely in American Odds a plus sign before the triple digit number means you will receive greater than a dollar for dollar returns on a wager. +110 indicates that if you bet $100, you would win $110 on a successful bet.
To complete the hypothetical, for the Rams – Bills matchup, each team would receive a -110 designation for their side of a spread bet. The spread smooths out the differing strength of each team. With a well-set points spread, it is equally likely that either the Bills or the Rams would cover the spread.
Bettors on either side of the equation need to wager $110 to win $100 if their team covers the spread. A similar moneyline matchup may have had the Rams -200 and the Bills +150, solely to win the game. So, for players who believe the Rams will win and do so relatively easily, the spread offers significant value . Instead of needing to risk $200 to win $100, if a bettor believes the Rams can cover the 3.5-point line, they can wager $110 and return $100 on a win.
Because both the line and the odds are constantly shifting before a game, finding the best odds is vital to becoming a winning sports bettor.
Our reviews of the top sports betting sites on the internet can help you find the best place to wager on the spread, and even secure sports betting and casino bonus offers to help boost your bankroll.

OddsShark Sports Betting What Is A Point Spread And How Does It Work?
A point spread in sports is a way for oddsmakers to make a matchup between two unbalanced teams more balanced by giving points to or taking points away from each team.
The favorite in a matchup, indicated by a minus (-) sign, will have a given number of points taken away from its final score, while the underdog , known by its plus (+) sign, will have the same number of points added to its final score.
Be sure to check out our sports betting glossary to assist you with some of the terms used in our sports betting guides.
NFL spread betting is probably the most common and popular way to bet on football as it adds some excitement and better odds over just picking an outright winner. If you are new to betting the NFL altogether, be sure to check out our great How to Bet on the NFL guide.
Here is an example of a point spread for an NFL game and how it would look:
As you can see, Dallas is the 4.5-point favorite, which means the Cowboys would need to win the game by five points or more to win the bet. Conversely, New York is a 4.5-point underdog, which means to win the bet the Giants would need to win outright or not lose the game by more than four points.
If the Cowboys win 20-17, they win by three points and do NOT cover the 4.5 points, but the Giants have “covered the spread” by staying within 4.5 points.
Point spread wagers often will be put into parlays in which you make multiple bets on one slip for a larger payout. If you have a few games that you’d like to wager on and want to see how a payout changes by adding or subtracting games, feel free to play around with our odds calculator to help you learn how odds work.
There are certain point spreads that bettors should be aware of that are known as “ key numbers .” These spreads are directly related to how points are scored in football such as a field goal (three points) or a touchdown (seven, assuming a successful one-point conversion). The three main key numbers in NFL point spread betting are 3, 7 and 10, representing a field goal, a touchdown and a field goal plus a touchdown.
The two most common margins of victory are three and seven points because of the type of scoring in the NFL. This is why you should shop around at different sportsbooks to find better lines to maybe gain an edge over the key numbers like getting a +3.5 spread as opposed to just +3 – you can get a quick look at the different books at our NFL odds page .
You can also “buy” points with a “ teaser bet ”
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