Spread Betting Basics

There is no lack of basketball bets that you can make, and those bets are pretty easy to understand. From the typical spread and total to futures bets and proposition bets you have a lot of choices. The basics of bonds - MoneyWeek Investment Tutorials. Want to find out more on spread betting? Now, for someone looking to try spread betting for the first time, let’s quickly walk you through the basics.

Q. What do the terms 'Short Position' and 'Long Position' mean?

A: Traditionally, investors have bought stocks in the hope of profiting from a rise in the price. The viewthat the price will rise, and the following instruction to buy, is described as 'long' or 'going long'.
A long position is when you purchase something in the belief that the share will move upwards. So you take a LONG position on it i.e. buy it with a view to selling it at a higher price later for a profit.
A short position is the opposite but the intricacies are a bit harder to explain. Basically you take a short position if you believe the price of a share, commodity or index will decrease or go down. You then take a SHORT position on it i.e. sell it with a view to buying it at a lower price later for a gain. In other words here you are effectively mimicking the act of selling securities you do not own in the hope of a fall in price which can later be closed at a profit by buying the shares back at the lower price.
Shorting ('shorting' is also explained more fully in this section - 'What is Shorting?') as a speculative tool is when you have purchased a future or derivative that allows you to benefit from a share falling, or if you borrow shares and then sell them to benefit from a falling price.

Another good simple explanation would be the following. A short position is when a trader gambles that a share price will fall. Investors take a short position by borrowing stock, usually for a modest fee. They then sell the shares on the open market. If they get it right and the price falls, they can buy the shares back at a lower price, return them to the original owner, pay fees and still pocket a profit.'
I do believe going short offers great opportunities to private investors, however it is something which needs experience, and a real understanding of the market workings.

How does it work? All spread betting firms will quote a sell (or 'bid') price on stocks. This is the price you would use if you wanted to take a short position. If the share price falls, you would stand to make money. If it goes up, on the other hand, you would lose money. In this way it behaves inversely to a normal long position.

Let's assume Vodafone is currently being quoted at 139p - 140p (139p to sell and 140p to buy) and you believe that Vodafone is about to fall. You decide to sell Vodafone at 139p betting £10 per point. This means you will gain £10 for every point that the price of Vodafone share price falls below this level, likewise you will lose £10 for every point that the Vodafone share price rises above the 139p level -:

Q. Can you really make money in falling markets with a spreadbet?

A: Yes, in fact spread betting comes in very useful if you believe a company's stock price will fall as you can use spread betting to profit from any decline. Now, I do realise that making money on a falling stock sounds like an impossible feat to achieve but just like you can make money by 'buying cheap and selling high', so you can make money by 'selling high and buying low' i.e. selling the shares at a high price and then buying them back at a lower price to make a profit. The practice of profiting from a fall in a company's share price is referred to as 'shorting'.

Example:
Let's take a look at the chart of Datacash Group PLC (Public, LON:DATA) over the last 3 months.
- 1. We sell at 250p for £5 per point (each penny being equivalent to a point).
- 2. We set our stop loss at 290p (which is above the highest price Datacash has risen over the previous 6 months.
- 3. We watch as the price falls over the next 6 days and decide to 'Buy' the shares back at 200p.
- 4. Profit from the trade = 250p - 200p = 50 points. So our gains amount to 50 X £5 per point = £250. Since our stop loss was set at 290p, we had to deposit 40pts x £5 = £200 [{i.e. (290p 'stop loss level ' - 250p 'sell price') X £5 per point)}= amount at risk] as margin to open this trade.
That amounts to a £250 profit from a £200 deposit, a return on capital employed of 125%, not bad for a week's trading!!

Q. But how can you sell something which you don't own?

A: A common problem investors have in understanding the concept of shorting. As opposed to conventional share dealing, spread betting allows you to sell first and buy back later with the aim of profiting from a falling price - this is known as 'going short'. But how can you sell something which you don't own?
It might sound a bit odd to sell something you don't own, but situations like this occur all the time in everyday life. Think about Christmas - when you reserve a turkey for your lovely christmas dinner the butcher is selling you something he doesn't yet own. He then only buys it off the farmer much later.
You could think of it another way - you could sell your neighbour's car for a lot of money while he is away on holiday, as long as you can replace it with the same type of car before he comes back (you'd try to sell his car at a higher price than you would buy the replacement).
The exact same thing can happen when shorting. Let's take commodities for instance - you can 'sell' gold by promising to deliver it to your 'customer' in a few months time. When the time arrives you can buy it and pass it straight to the 'customer' - easy!
A spread bet simply takes a view on the direction in which the price moves. i.e. in other words a spread bet is a contract between you and the spread betting provider to exchange the difference in value of a designated instrument such as a share or index when the contract between the two parties closes. The value of this contract is derived from the price of an underlying instrument - at no point do you ever own the underlying security, irrespective of whether you are trading long or short.

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If you place wagers on US sports, then chances are high that you’ve heard of point spreads. Here’s how they work; if a game has Patriots -9.0 and Vikings +9.0, the Patriots are 9.0 point favorites and the Vikings are 9.0 point underdogs. Unless otherwise stated, no matter which team you bet on, you’ll be required to risk $1.10 for each $1.00 you want to win. For Patriots bettors to prevail, they need their team to win by 10 or more points. A 9-point Patriot victory would be a push (a tie). For Vikings bettors to take home the victory, they need to either win the game or lose by less than 9 points.

Point spreads are used since most recreational bettors prefer to wager even money propositions. In the above example, if there was no point spread, only moneyline betting would exist. So, if odds makers are giving the New England Patriots a 73% chance of winning a game, then in order to take bets and still have a small profit margin, the bookmaker would have no choice but to require Patriot bettors to stake $3.00 or more for each $1.00 they want to win.

With a point spread, the odds are balanced, so you usually have to risk just $1.10 to win $1.00. This makes the point spreads appealing to recreational bettors, who often think it’s easy to make money from them. We have to be honest with you; it’s NOT easy, but it IS possible. The strategy we cover in this article should help!

We’ve provided a brief explanation of point spreads in our introduction here, but if you’d like to know more about this type of wager then please read our beginner’s guide to betting point spreads.

Simple Tips for Point Spread Betting

Strategy for betting point spreads is obviously different for each sport and league, but these four tips are general enough to apply to them all.

• Take Advantage of Bonus Offers
• Use Multiple Betting Sites
• Be Careful of Road Favorites
• Understand Key Numbers

Let’s go over each of these tips in a little more detail.

Take Advantage of Bonus Offers

One way to make money from sports betting is to open an account at an online betting site and take advantage of their sign up bonus. This gives you extra money to wager with, and since point spreads are so straightforward, it can be relatively easy to meet the associated wagering requirements and still come out ahead. Repeating this process at multiple betting sites will maximize your potential returns! We just ask that you please stick with reputable sites, like any of the ones that we recommend.

Use Multiple Betting Sites

We already mentioned how using multiple betting sites allows you to take advantage of multiple bonus offers. That’s not the only benefit either. Since point spreads vary between sites, one of the best ways to beat these wagers is to compare the different spreads in order to find which one is the most favorable. This doesn’t take nearly as long as you might think, and it will make a huge difference to your bottom line over time.

Let’s take a hypothetical game between the Buffalo Bills and the New England Patriots as an example. One site might have the spread as follows.

Another site might offer a slightly different spread.

If you’re betting in favor of the Patriots, then you should be betting with Bookmaker A. If the Patriots win by more than seven points, then you’ll win with either bookmaker. However, if they win by exactly seven points, you’ll lose with Bookmaker B. With Bookmaker A, you’ll push and get your stake returned.

On the other hand, if you’re betting on the Bills, then Bookmaker B will be your best option. A Bills loss of exactly seven points would be a push at Bookmaker A, but it would be a win for you at Bookmaker B.

It’s only a half-point difference, and that might not seem like a lot. The bookmakers tend to be very accurate with their spreads though, and an extra half-point in your favor can easily add up to extra profits over time.

Be Careful of Road Favorites

Many novice bettors fail to understand the impact of home advantage when wagering on sport events. When looking at the board for potential wagers, these bettors tend to get excited and bet on lots of superior teams favored on the road against weaker opponents. The betting market is so much more advanced than this, and for the most part point spreads are always going to be 50/50 propositions.

We’re not saying that you should never bet on road favorites. Just make sure that you have good reasons to do so. Keep in mind; they don’t just need to win, they need to win by a greater margin than the spread suggests they will.

Understand Key Numbers

While understanding key numbers is beneficial for betting point spreads on any sport, key numbers are known for having the most significance in football. In NFL football, most games are decided by three or seven points. Therefore, when shopping the odds, the difference between -7.0 and -6.5 is far greater than the difference between -5.5 and -5.0.

With some betting sites odds, certain games are priced differently than risking $1.10 to win $1.00 (which is called -110 odds). For example, you might see the Giants priced at -105 and +7 in a game against the Jets. Now, you only have to risk $1.05 to win $1.00. This is obviously better odds, but it’s very likely that they will lose by exactly seven to give you a push. Taking -110 and +7.5 with an alternative bookmaker is actually the better bet.

Getting your head around these kind of intricacies, as well as knowing the relevant key numbers, is vital if you want to bet on the point spreads successfully.

Now that we’ve got the basic tips covered, we want to provide you with some point spread betting tips specific to two of the most popular US sports: football and basketball.

Point Spread Betting in Football

One of the best ways to beat football point spread betting is to use teasers. A teaser is a form of a parlay bet using modified point spreads. Each point spread you select is moved 6 points in your favor. For example, let’s say you’re interested in betting on the following.

A teaser would give you a single wager with the following spreads.

Each selection is obviously easier to get right with the spread moved in your favor, but you do have to get all three correct in order for your wager to win.

If you want to learn how to beat this form of wagering, you’ll definitely want to read our article on betting football teasers.

Another way to beat football point spreads is to shop for off market prices. For example, let’s say you’re shopping online betting sites and see every site is offering Vikings +7.0. Then, you stumble upon one site that’s offering +7.5. There’s a good chance that this is a +EV wager, simply because it is out of sync with every other site. Please note that this strategy isn’t quite the same as simply shopping for the best lines. Here, you’re specifically looking for wagers that are +EV because they’re against the market.

It’s also important to consider whether or not there’s any correlation between the point spread and the betting total. If they are, a parlay wager is a good way to get maximum value. For example, a college football point spread +24.5 parlayed with under 48 points in the same game might be a great parlay bet. If the +24.5 team covers the point spread, then there’s an increased chance that the game also goes under the posted total of 48.

Finally, you might want to think about learning the correct strategies for buying half-points in football. While many people are against this method, we’re here to tell you that there are some circumstances where buying points can be profitable.

Point Spread Betting in Basketball

Buying half points is a strategy that can work for basketball too. Most online betting sites offer bettors the ability to purchase half-points at 10 cents each. Let’s say the Lakers are -6.5 at odds of -110 for example. Here of some of the options you can expect to see.

A great strategy for betting basketball point spreads is to shop dozens of betting sites for the best line, and then purchase as many half points as possible (provided they are priced 10 cents each).

When using this strategy, it’s helpful to know the most common margins of victory in NBA basketball and how often they occur.

This information shows us that nearly half the games finish with one of the eight point margins listed, and this isn’t the result of variance. Some margins of victory occur more frequently than others because of end game strategy. The winning team is often found running the clock, while the losing team if often found intentionally fouling.

The key here is to target the point spread five and seven, because these are virtually tied as the most common margins of victory. It’s important to recognize that most betting sites are only willing to sell 2 or 3 half points for 10 cents each, after which point they start charging more. Some sites sell up to four half points at this price though.

To show how this can be exploited, take a point spread of -8.5 at odds of -110. This is a 50/50 proposition. Let’s assume you’ve purchased enough points to move the spread to -6.5 at odds of -150. Now, you’d win instead of lose 6.24% of the time they win by 8, and 6.59% of the time they win by 7. Add these together with the 50% from the original proposition, and we get 62.83%.

Go to our odds converter, and you’ll see that the implied probability of -150 is 60%. This means you need to win 60% of the time to break even. However, our handicapping shows the actual probability of winning is 62.38%.

If we risked $150 to win $100 on this -150 line, 62.38% of the time we would win $100. And 37.62% of the time we would lose $150. This gives us an expected profit of $5.95 for every $150 risked.

Spread Betting Basics Rules

If you only make large +EV bets such as the basketball example above, betting sites will limit the amount you’re allowed to wager. It’s not uncommon for online bookmakers to spot a skilled bettor and say, “Okay you can keep wagering here, but the maximum you’re allowed to bet per game is $500.00.”
If you keep betting and winning, they might decrease your limits even further. That’s why we recommend trying to hide the fact that you’re so sharp. By placing some random wagers and occasionally spending some time at their casino, you’ll have a much better chance of staying under the radar.
This is also another good reason for using multiple sites. Since there are so many different reputable betting sites to choose from, it would take you a long time to get limited at every single one of them.