Firstly, it's probably best to actually explain what spread betting is and how it differs from normal fixed odds betting.
WHAT IS SPREAD BETTING?
In traditional fixed odds betting there are usually just two outcomes to worry about:
a) You are right and you win your stake multiplied by the odds. Good!
b) You are wrong and you lose your stake. Bad!
But in spread betting there are varying degrees of being right or wrong and the more right you are the more you win. Conversely, the more wrong you are the more you lose.
Say the bookmakers offer 4/5 about Manchester United beating Arsenal at Old Trafford. Your best mate works as groundsman at The Emirates and knows that the first choice Arsenal goalkeeper has the flu, the second choice keeper is injured and the 16yo youth keeper will make his senior debut tonight. Obviously, you think Man Utd are going to thrash them in a goal fest so you stake £100. It doesn't matter if they win 1-0, 2-0 or 9-0 though you will always get paid out £180 and win £80 for your bet. Fair enough, you knew right from placing your wager that was going to be the case. You either win £80 or lose your £100. The ease of their victory is irrelevant.
But what if you could bet on how easily Manchester United would beat Arsenal and get paid out more and more for every goal they score? This is where spread betting steps in.
By either buying or selling on the bookmakers spread we can do just that...
WHAT IS A SPREAD?
The spread is simply a range of results that the bookmaker's traders think will be the most likely outcome in any specific event. In our example this may be number of goals Man Utd score in the match.
The traders may think the most likely number of goals Man Utd will score in this match will be 2 but that's a little precise and there is no room for error so the traders build a safety margin into the spread. They give themselves a bit of leeway by creating a gap around their result which is usually around 2-10% and is much like the over-round in a standard betting market (the smaller the margin the better it is for the punter). It would be written as 2 numbers separated by a hyphen. So instead of having a spread of 2 they would make it say 1.5 - 2.5.
The traders are working with the same information as everyone else and their opening spread, much like in fixed odds betting, is based simply on their opinion. Once the spread is announced the same market forces that operate in fixed odds betting will get to work and move the spread backwards or forwards depending on where the money is being wagered.
Once the spread has been set it is then up to the punter to either buy or sell.....
BUYING AND SELLING
Once the spread is set you must decide whether you think the outcome will be bigger or smaller than the market suggests. If you think the outcome is going to be bigger then you will want to BUY and conversely you would SELL if you think the outcome will be smaller. Buyers use the higher number of the spread and sellers use the lower one.
If we stick with our example of 1.5-2.5 goals in the Man Utd vs Arsenal match we obviously think there will be a lot of goals so we would buy. As we are buying we use the top figure (2.5) and stake our £100. For every goal Man Utd score over 2.5 we will now win £100.
So the following outcomes may occur...
Your mates inside information is spot on and Man Utd win 8-0. You win £550 (8-2.5 x 100)
Your mates inside information is spot on but the young keeper plays a blinder and Man Utd only manage a 3-1 win. You win £50 (3-2.5 x 100)
Your mates inside information is a load of rubbish, Arsenal play their first choice keeper and Man Utd lose 1-0. You lose £250. (0-2.5 x 100)
As you can see from just these three examples there is a lot of volatility in Spread Betting!
One of the advantages of buying in a spread is that you know exactly how much your maximum losses will be. In our example we know that Man Utd cannot score a minus number of goals so the least they will score is 0 making our maximum loss £250. But our maximum make-up can be many times our stake depending on just how many goals Man Utd can score. Exciting stuff!
Now say you didn't have a mate who worked as groundsman at the Emirates and you're a lifelong Arsenal fan who would never dream of backing Man Utd to win. You know you have the best goalkeeper in the premiership and Man Utd will do well to score.
So you sell the Man Utd goals on the spread for £100 (at the lower number 1.5).
In this case the following outcomes may occur.......
Arsenal reveal 5 minutes before the match that their number 1 and number 2 choice goalkeepers are out injured and they are forced to play a 16yo in goal. Man Utd win 8-0. You now lose £650 (1.5-8 x 100)
The 16yo keeper plays well and Man Utd only manage to win 3-1. You lose £150 (1.5-3 x 100)
The rumours about Arsenal goalkeepers prove groundless and in a thrilling match Arsenal win 1-0. You win £150 (1.5-0 x 100).
Now you can see just how dangerous selling on a spread can be. We knew in our example that the maximum we were ever going to win was £150 but our losses could have been catastrophic with no real limit on how many goals Man Utd could have scored. Read a market wrong and you can end up losing a lot of money. Imagine something like the number of runs in a cricket innings. Sell at 250 and a side scores 600+, it's not going to be a good day!
That's not to say selling is always a bad idea. Buying is always more popular in the markets with less people selling so sometimes there is value to be had in the lower end of the spread but I would advise sticking with buying when you first start out!
ADVANTAGES TO SPREAD BETTING
As we have seen the main advantage spread betting has over it's fixed odds counterpart is that the more correct you are the more you are rewarded.
Another advantage with spread betting is that once an event has started the spread doesn't disappear or simply stay the same it moves depending on how that particular market is performing. This market movement makes it possible to adjust your position and gives you an opportunity to trade out either to guarantee a profit or limit your losses. Obviously the more you get it wrong to begin with the more you'll end up losing and the earlier you get it right the more profit you can lock in.
There are usually a lot more markets available to wager on with Spread Betting as there are countless options available to the traders. In a simple football match you can bet on number of goals scored, time of the goals, corners, throw ins, shirt numbers, substitutes used etc. and all have differing ranges of 'correctness'. Some of these markets offer a lot of value and offer the chance of big wins for small downsides and with every sport imaginable having multiple markets on them as well as stocks, currency and financial spreads available the betting opportunities are enormous.
Obviously the more markets that are on offer the bigger the chance of the traders making a mistake. They can't know everything and if you specialise in a certain area or have a mate who works as groundskeeper at The Emirates and shares information with you then you have an immediate advantage. Once the markets are released the traders are then relying on market forces to re-adjust their spreads. Much as in fixed odds betting, going against the general consensus can often prove a profitable strategy.
It is possible to lose a lot of money very quickly when spread betting and you can lose much more than your original stake. Be aware that a £100 stake does not necessarily mean you will only lose £100, It could be many multiples of this amount. It's always best to imagine the worst case scenario and work out the most you can lose on any market BEFORE placing your trade.