New ways to lose your shirt
Spread betting is transforming gambling's image from a mug's game to a fashionable pastime.
Saturday 05 December 1998
Spearheaded by three leading companies (I.G. Index, Sporting Index and City Index), spread betting is transforming our gambling culture. Forget putting a fiver each-way on a horse in the 3.30 at Chepstow, spread betting is a high-tech, top-drawer and big money business. As one City trader put it: "This is classy betting."
The differences between spread betting and traditional fixed-odds betting are many. Primarily, with fixed-odds betting you are predicting the result. In other words, you are deciding whether a team is going to win, lose or draw and nothing else. With spread betting, however, you gamble on whether that team will perform better or worse than predicted.
"It's basically like Bruce Forsyth's television show Play Your Cards Right", says Patrick Jay of I.G. Index. "All you have to decide is whether our prediction is too high or too low. If we say that England are going to score 500 runs in an innings, the chances are you will disagree with our prediction and bet low. Conversely, if we say that Australia will score 50 runs in their innings, you will most probably bet high."
Nothing extraordinary so far. But there is the twist that makes spread betting exciting and very dangerous is that both wins and losses are calculated on a multiplier effect. The more right you are, the greater the winnings; the more wrong, the greater the losses. "What you win or what you lose," says Jay, "is the difference between where you bet and the final outcome, per point." In other words, if you thought that England wouldn't score 500 runs but they scored 800, you would lose 300 points. If your original stake was pounds 1 per point, you may survive the pounds 300 loss. If it was pounds 100 per point, a debt of pounds 30,000 may not be quite as easy to repay.
"The risks are huge," says Jay. "That is why we credit-check everybody who applies for an account." There are 20,000 clients on I.G. Index's books. The Securities and Futures Authority regulates the company and insists that gamblers have the financial backing to cover any potential losses. Not that prospective clients have to be wealthy. "Though most of our punters are middle-class professionals; we are now attracting a wider clientele. When the business started five years ago, 90 per cent of our clients were City based. Now, it's no more than 10 per cent."
The office of I.G. Index resembles Nasa's mission control - two banks of desks face about 20 television screens. "We constantly monitor a game's progress. But the screens also provide us with important information," says Jay. Such as the odds offered by competitors. "Naturally, we like to keep in touch with their predictions, just in case they know something we don't."
I watched the match between Celta Vigo (a Spanish football team) and Liverpool in the UEFA cup. I.G. Index offered 16 different markets, from the time of the first goal to the number of corners. During this game alone, some 750 calls would to be logged, with punters eager to change their position.
"If you've predicted that there will be one goal in the whole game and the score is 1-0 after five minutes, you'll want to call-in and sell your position," says Jay. "The important thing is not to stick stubbornly with a losing bet. That can get you into real trouble.
But people can win big too. During the General Election in May 1997, one punter bet pounds 4,000 per Liberal Democrat seat. We predicted that they would win somewhere between 23 and 26 seats. As it turned out, they won 46 seats and this lucky man won pounds 80,000."
Though I.G. Index concentrates on sporting events, it also allows clients to trade on futures and options as well as financial markets and currencies. This is obviously a popular option with City traders, especially as I.G. Index's prices appear on their computer screens.
Clearly, not everyone is working all that hard then. "We get calls at all hours and from all over the world", says Jay. "People call us from home, from work, from the pub. Sometimes, we even get calls from punters on Caribbean cruises, though they are usually to boast that we are paying for the holiday."
Back to the match, and Liverpool surrender a 1-0 half-time lead, the phones ring more and more.
"Most people thought that Liverpool would do well tonight", says Jay. "Now that Celta Vigo have taken the lead, they want to bail out as quickly as possible and cut their losses." With the score at 2-1, I.G. Index is having a good night. Most of its predictions are proving correct.
"Anything can happen though", says Jay. "The last minute goal by Emmanuel Petit in the World Cup final in July, cost the industry pounds 100,000. You can be totally in control and then, suddenly, a goal goes in or a player is sent off and you're in big trouble."
Celta prove this by scoring their third goal in injury-time.
"It's annoying," says Jay. "With the score at 2-1, we would have won pounds 18,000, but because of that goal we will be down pounds 2,000 on that match." Well, you win some; you lose some.
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