Given the massive growth in the overall popularity of spread betting as an investment tool in recent years, alongside the ever higher profile achieved by the general gaming industry, it is perhaps quite surprising that the traditional form of gambling – fixed-odds betting – is not more widely used.
Fixed-odds betting is quick and easy to understand – anyone who has ever placed a bet on the Grand National or on a football match will know how fixed odds work. It is commission-free, losses are limited to the amount that you bet and, under current legislation, the proceeds are tax-free.
However, to date, fixed-odds financial betting has remained a niche area, largely served by internet-based specialist services. First into the field was BetOnMarkets.com which offers a rage of betting facilities on stocks, indices and foreign exchange rates at fixed odds.
Limited risk
Michael Wright, director of BetOnMarkets.com, feels that ‘With fixed-odds trading you can control your risk entirely. There is no need to be over-exposed to the market and zero danger of your account being wiped out by a sudden sharp move. There is also much greater flexibility available in fixed-odds trading. Profits can be made in rising, flat and even falling markets, provided that you are correct about the market direction. There is certainly no more need to wait for months on end hoping that the FTSE will gain a measly two per cent.’
Wider options
Wright explains that ‘Our fixed-odds trades are still mainly on equities, but we have seen a lot of trading on gold recently. Also, many people use moving averages on our site, with bets running from one minute to a maximum of five minutes. But there is no spread involved – the only way we win on these bets is if the average closes exactly where it started. There is no commission. It is the fairest trade that I have ever seen.’
Can betting on the movement of a share price or index really be classed as an investment strategy? Matt Shaw, owner and operator of the website Fixedoddssuccess.com, argues that it can. ‘I discovered fixed-odds trading at the beginning of 2003. At one of the many seminars that I attended for spread betting, I met a man who had just opened his first fixed-odds virtual account and begun trading alone. He was actually losing money, as so many people do when they first start.’
Shaw highlights what he believes was the reason for this punter’s lack of success: ‘He was the type who wanted to immediately make the “big bucksâ€. Big bucks are great, but you have to learn the ropes first, slowly building up your pot and progressively expanding your portfolio.’
He is insistent that fixed-odds punters should follow a coherent strategy. ‘Most of my trades are barrier bets and “no touches†(see below). I now always make sure to weight my barrier trades as to how I think the market will level out over the first two to three days of its opening.’
‘No touches’ and ‘barriers’
Matt Shaw, owner of Fixedoddssuccess.com, explains two fixed-odds trading strategies:
With a ‘no touch’ bet, if I wish to win £1,000, I first price a potential trade using the BetOnMarkets website. If the Dow Jones index does not touch or trade through 13,000 (the current trade price being, say, 12,745) at any time during the next nine days then, if the cost of the bet is £649, I need a 54% return to make £1,000.
If I am correct, and 13,000 is not reached, I will win £351 (£1,000 minus the £649 stake) tax-free profit.In the week that the trade is running, the stake price (the premium) will fluctuate according to how the Dow Jones behaves.
If it rises nearer to the 13,000 level, then my stake will decrease in value. If it moves away, its value will rise. But it will never rise above £1,000, as that is the maximum I can gain.
I usually price trades at £8,000 to £12,000, and look to earn around £1,500 per trade.
The ‘barrier range’ is a similar concept, but you choose higher and lower barriers. I could, for example, use the 13,000 level as my high barrier and 12,000 as my low barrier.
