Risk and reward in selling the Ivory Coast short

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The Independent Online
Spread betting has reached a new peak of popularity this week with the opening of the Rugby World Cup. Thousands of professional punters, not content with the mundane business of conventional betting, are taking to the new craze with alacrity. The prices quoted by the two leading specialist spread betting firms, IG Index and City Index, have been among the most popular pages consulted by City dealers all this week.

All the signs are that this new form of betting - more complicated and more risky, but also more fun and potentially more rewarding than conventional gambling - is set to grow further in popularity. William Hill's announcement this week that it is to start offering a sports spread betting service from July onwards underlines that the practice is now increasingly finding its way into favour with the ordinary public as well.

Until now spread betting has largely been the preserve of wealthy individuals and professional City traders. The most common form it takes is betting on movements in stock markets, currencies and other financial instruments. IG Index and City Index claim some 15,000 clients, of whom around a fifth are described as active or regular users of the service.

William Hill's decision to enter the market is bound to add a further boost to a form of gambling which is certainly fun - but definitely not for the faint-hearted. The firm is the first of the big bookmaking chains to enter the field.

In conventional betting, you are betting on a specific outcome and the risk and potential reward are known in advance. In spread betting, the reverse is true: both your potential winnings and your potential losses are unknown - and in some cases may be unlimited.

Suppose you want to bet that South Africa will win the Rugby World Cup. Ignoring betting tax for the moment, in conventional betting if you bet pounds 10 at odds of 4-1, you know that you will win pounds 40 (plus the return of your stake money) if South Africa win. If your bet fails, you know that you will forfeit your stake money, but that is all.

In spread betting, by contrast, the bet and the range of outcomes is quite different. Taking yesterday's match between Scotland and the Ivory Coast, for example, you might have bet on Scotland's winning margin. Before the match, for example, the spread betting firms were quoting a range of 72-76 points.

The actual result was a victory for Scotland by 89-0. If you had bought the bet, you would have won pounds 13 for every pounds 1 you had bet (89 less the 76 quoted by the bookmaker). If you had sold the bet (ie gambled that Scotland would win by fewer than 72 points), you would have lost pounds 17 for every pounds 1 you had wagered (89-72=17).

The example illustates that spread betting is potentially very risky. It is definitely not a pastime for the amateur. Some of the clients of the specialist firms regularly win and lose thousands of pounds by taking a view on movements in the Footsie index and currencies.

You should not consider it unless you are both fully briefed on how it works and have sufficient resources to cater for the worst outcome. City Index and IG Index both accept bets from small-scale punters, but you have to deposit or show you have credit equivalent to 50 or 100 times the amount you are wagering.

The great attraction of spread betting is that the upside is high and that the gambler does not have to pay betting tax. The downside is that the risks are much higher.