Spread betting is becoming more and more popular way of betting in 2011. With almost .5 a million active spread betters in the UK and growing, it has its advantages because there is no capital gains tax. Financial Spread betting however has its risks so it is advised to research your markets well, and try out a demo account before launching yourself from the virtual world into the melting pot of spread bets.
Spread betting comes under the category of wagering, where an outcome is primarily based on precision and accurateness of the wager. A spread comprises of set of outcomes and it is used as a benchmark for determining the bet. In other words, the outcome of the bet can be higher or lower than the spread. In recent times, it has captured the United Kingdom’s market, with more than one million gamblers.The level of risk in spread betting is high as the value of profit or loss is quite greater than the actual amount that was wagered. The Financial Services Authority is the main governing body for spread betting.
In terms of finance, spread betting is an alternate solution for investors in making investments in the stock market. It is free from tax and it gives them the opportunity to make profits irrespective of the condition of the market. At the same time, it allows them to access wide ranging markets ranging from individual shares to indices. Consider an example in order to understand the concept of spread betting. For example, the spread betting company quote is 895-899. The investor thinks that the price of the share will increase to 894-898. The investor buys the point at 899. The price experiences a rise and it moves between 894-898. The investor experiences a profit and would sell at 894.
Spread betting aims at creating a dynamic and competitive market for both parties. Even if the outcome favors one party over another, it is bound to offer lucrative opportunities to both sides. During a sporting event, a bet is made between a strong team and a weak team. The stronger team is the preferred or favorite team, whereas the weaker team is the underdog. A simple wager would be made in favor of the favorite team as majority of the bets would be made in their favor and only few would wager for the underdog. A point spread is used, which is used to determine the number of gamblers on both sides. This gives the authority to the bookmaker to create a market. He or she accepts the bet from both sides and charges a commission. The bookmaker also plays the role of mediator for both sides. The bookmaker is concerned about the profit as long as both sides are approximately equal.
The spread has to be divided into equal number of wagers on both sides; therefore, the probability on both sides is fifty percent. A bookmaker has to pay either one or both sides a lesser value in order to generate profit. In actual practice, bookmakers frequently modify and change their odds in order to avert risk.