Spread your bets

By DARREN BEHAR
Updated:

 

Britain is in the middle of a betting revolution. Thousands of private investors are turning to bookmakers to spread bet as a different way into the stock market. City Index, IG Index, Sporting Index and Financial Spreads are four of the biggest firms offering investors a low-cost but high-risk alternative to buying and selling shares.

You can also bet on whether a share price or stock market index such as the FTSE 100 will rise or fall. For example, you may think Marks & Spencer is about to recover from its current turmoil. Its share price is 229p but you feel it is going to rise by a certain date - this would typically be three months into the future.

So you phone one of the spread betting firms which may quote a spread of 300p to sell and 305p to buy. If you believe M&S is likely to rise to higher than 305p, then you buy, but if you feel it will not reach 300p, you sell. You buy or sell per penny above or below the spread. So on the M&S spread, you may choose to bet £10 for every penny rise above 305p - the minimum bet is £1 per penny. You win £10 for every penny rise above 305p. But if the share price does not reach 300p, you lose £10 per penny.

And you can also bet on sporting events such as the time of a first goal in a football match, the result, or even the number of red cards. The spread betting firm will quote a spread in minutes for the time of a first goal, for example 20 to 22. You sell or buy according to when you think the first goal will be scored. So if you think the first goal will be scored after 15 minutes you sell at 20, placing £10 as your bet. You win the difference between when the goal was scored and the selling price - in this case 20 less 15. If you were right you'd win £50.

Spread betting is an easy way to make a lot of money quickly but the risks are also enormous if you misjudge a market. For instance, if the first goal was scored in the 90th minute in the above example you'd lose £680. That is 90 minus 22, times £10.

But one lucky punter placed a bet on Arm Holdings last year turning a £10-per-point rise in the firm's share price into £850,000 eight months later.

And you can limit the down side by placing a floor on the bet, so you can minimise your losses. You can also opt out of the bet at any time to take your loss or gain. You have to open an account with one of the firms to make a bet, but this can be done over the phone.

The account takes about five days to set up and you must go through a credit check, similar to when applying for a credit card. It is free to start an account. And spread betting has advantages over traditional share deals and fixed-odds betting. Your winnings are free of capital gains and income tax. You keep all your profit and there is nothing to declare on your tax return.

The spread betting firm makes its money in the spread between the buy and sell prices. This is usually wider than you would get from a broker. But it is much clearer than the traditional commission, fees and stamp duty paid when dealing with a broker. There are none of these costs on a spread bet. Traditionally investors have been unable to bet on stock market indices through a broker. But spread betting allows you to bet on a rising or falling market.

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