Spread betting is any form of placing a specific pay-out on the result(s) or outcome of an event. In ‘Spread betting’ the pay-out itself and the specified amount is usually based on the correctness of the person placing the bet spread. ‘Spread betting’ is different from the other forms of wagering. It is not like the ‘win or lose’ stakes, ‘money line’ form of ‘betting’ or the ‘pari-mutuel betting’. It is called ‘Spread betting’ because it is not based on a single result. A Spread bet is based on a range of results. This range is based on the possibility of the range being above or below the spread.
How did ‘Spread betting’ come into existence?
‘Spread betting’ was invented by a mathematics teacher by the name Charles K McNeil from Connecticut. Charles became a book marker in Chicago in the 1940s. The idea of ‘Spread betting’ became widely known in the UK in the 80s.
In the most recent years, ‘Spread betting’ has been in the frontline of ‘money marketing’. The number of people involved in ‘Spread betting’ is dangerously close to a million. ‘Spread betting’ the form of money marketing practice can be classified as very risk intensive. The possible loss or profit far outweighs the actual money placed on the Spread bet. Due to this risk level, the UK’s ‘Financial Conduct Authority’ is the body functioning in a regulatory capacity to regulate the activities of ‘Spread betting’ in the UK.
Purpose of ‘Spread betting’
The common purpose of ‘Spread betting’ is to create a dynamic market for a mutual access to both sides of wagering. The ‘Spread betting’ rule requires an equal number of wagers to be on both sides. This means a probability of 50% on either side of the spread to make profits. The outcome of a ‘Spread bet’ requires a bookmaker to pay one side or both sides of the bet, an amount less than the actual amount placed on the ‘Spread bet’ in order to make profit from the action. When a ‘Spread bet’ appears to favour one side, the book marker decides to adjust the odds so as to enable them manage their risks in the best ways possible.
Taxation in ‘Spread betting’
In some European countries including the UK, ‘Spread betting’ profits are free of tax. ‘Spread betting’ is classified as gambling. Although ‘Spread betting’ is classified as a financial item by the Financial Conduct Authority, it is treated free from a capital gains or stamp tax since it is not a form of investment. Traders are also not legally obliged to the payment of income tax unless they exclusively depend on their profits from ‘Spread betting’ as their income base. The exclusion from taxation serves as a major advantage of strength for the ‘Spread betting’ market, unlike other speculative financial forms of financial markets practices.
High Risk Levels
Although the non-tax rule has great advantage, any losses, cannot be compensated for in subsequent future earnings for tax calculations. It is therefore not a suitable venture for just anyone. ‘Spread betters’ must ensure they fully understand the risks involved in ‘Spread betting’.
