Gambling | The Smart Money

Spread betting

Spread betting has always been attractive to City types, but now canny clients use guaranteed stops to insure against big losses, says Jamie Reid.

September 11 2009
Jamie Reid

It was on September 15 2008 that Lehman Brothers went down, triggering a global financial tsunami whose shock waves continue to be felt. You might have thought most City traders experience enough drama and tension in their daily lives without feeling the need to supplement them with a few wagers on the side. But not a bit of it. At the height of last autumn’s crisis, the spread-betting firms saw unprecedented levels of business on their financial markets and had to divert their sports-betting traders to the City desk to cope with the sheer volume of inquiries. Some were from existing clients, others were requests to open new accounts as numerous financially numerate denizens of the Square Mile and beyond sought to profit from backing their professional judgment on how far the markets might fall. Of course, some of them may also have been trying to win back off the bookies some of those salaries, bonuses and stock option values that were busily going south as the likes of RBS, HBOS and AIG continued to implode.

Spread betting has always been attractive to City types, its “go short or go long” structure offering a closer facsimile of trading-floor conditions than conventional fixed-odds gambling. But as seasoned spread punters will know, it also carries the risk – if you read the market incorrectly – of potentially horrendous losses that can be much bigger than your original stake. That’s why smart spread-betting fans are attracted to the new Free Guaranteed Stops facility offered by ShortsandLongs.com, which is a financial spread-betting offshoot of parent company Spreadex. In more conservative times no sensible banker would neglect to insure themselves against risk and, in a period of high market volatility such as the present, a Guaranteed Stop can insure financial spread betters against a sizeable downsize loss.

Take the example of the market on the mining stock Rio Tinto, which on November 25 2008 plunged from a high of 2,450p per share to 1,550p after rival BHP Billiton pulled its hostile bid for the company. One ShortsandLongs client, expecting the market to go on rising, had earlier bought Rio Tinto for £10 a point at a quote of 2,449. The normal rules of spread betting mean that he should have been facing a loss of 899 multiplied by 10, the former being the number of points by which the stock had fallen below the figure he had bought at. But he had asked for a guaranteed 30-point stop on his bet, meaning that his wager was closed out at 30 points below 2,449 rather than 899, resulting in a loss of just £300 and saving him £8,690.

Spreadex is no doubt hoping that its generous offer will lead to an increase in the overall volume of spread betting, which will more than compensate for what it might have won from the occasional spectacular customer blowout. But if you are determined to bet on highly volatile markets such as commodities or currencies, as well as bonds and shares, and you don’t want to end up like the big City losers of a year ago, it would make sense to put a stop on your bet wherever you can.

If financial markets are not to your taste, or you are a trader who just wants an enjoyable recreational bet, Spreadex also runs a wide range of sporting markets. And this time of the year, with the new football season barely a month old, is a good time to take a position on its Premier League points predictions. I’d want to be a buyer of Manchester United’s total at 83 and a seller of their local rivals Man City at 67. United may have lost Cristiano Ronaldo but Sir Alex Ferguson has repeatedly demonstrated his skill at selling big names at the right moment and moving on with a new team. He is also the man to conjure a late career revival from the injury-prone Michael Owen, who he has acquired on a free transfer. City, by contrast, seem to be stuck in pre-credit-crunch mode and believe that throwing vast sums of money at the transfer market will buy them success. But it remains to be seen whether manager Mark Hughes can deliver the performances the club’s new owners are expecting. I’d also sell Newcastle’s tally in the Championship at 69.5. Sadly, the Magpies are suffering from years of poor financial management and a recovery is unlikely just yet.