If you want to bet with your head, rather than your heart, on the Euro 2016 football championships where should you put your money?
You might be surprised to discover that there is sometimes a way that you can bet and be guaranteed to win. If you can find the right set of odds and put the right amount of money on each outcome, you will win back more than the total amount you bet, no matter what happens. For example, with the following odds, if you bet a total of £73 across the different teams left in the tournament, you’d be guaranteed to have a final balance of at least £99.
The problem is that bookmakers almost never offer such opportunities. If they did this, they would soon be out of business. In fact, bookmakers make their money because you can’t do this. This is because bookies’ odds don’t represent the real chance of an event happening.
For example, if you flip a coin the chances of heads or tails coming up are equal (1-1). But if you place a bet on the coin landing on heads, the bookmaker will offer you odds of something like 4-5. So if heads comes up you’ll win less money than you really should. The difference between 4-5 and 1-1 is where the bookmaker makes its profit, which is often referred to as the overround.
To preserve their profit, a bookmaker will never offer a set of odds without an overround. That does not that mean that you cannot look for the opposite – an underround – across several bookmakers. The technical term for this is an arbitrage. It can be difficult to find an arbitrage, though, and if you do find one they tend to disappear quite quickly as many punters will exploit it. So, is there another way to make an informed bet?
The range of things you can bet on in spread betting is only limited by the imaginations of the betting companies. You could, for example, bet on the number of corners in a match. At the time of writing, bets on corners in the England vs Russia first round match were trading at 9.75-10.25. This means that the spread betting company thinks that the number of corners will be 10, so they have set their spread around this value.
The spread betting companies make their money by virtue of the spread, that is the difference between the lower value and the higher value. The spread can be viewed as the same as the overround in that it is the mechanism that makes money for the spread betting operator.
If you think that the number of corners will be greater than 10.25, you would bet to buy (although you don’t actually buy or sell anything) and would win if the number of corners ended up greater than 10.25. If you think that the number of corners will be less than 9.75 you would bet to sell and would win if the actual number of corners turned out to be less than 9.75.
The amount you win or lose depends on how right or wrong you are. If you “sold” at 9.75 and the number of corners was 8, you would be right by 1.75 (9.75-8). If you had bet £1 at 0.1 per point you would win £17.50. But if the number of corners ended at 11, the difference would be 1.25 and you would lose £12.50.
The spread betting companies constantly adjust the spread to balance their books. If a large number of people buy at 10.25, they will move the spread so that they are not exposed to the weight of this buy money. This is the same as bookmakers adjusting their odds as bets are made on different teams.
But it is also the adjustment of the spread that provides you with an opportunity to lock in a profit. For example, you might buy at 10.25. If the market moves to 12.75-13.25, you can take the profit before the end of the event. You would do this if you wanted to achieve a certain profit or if you think that the market might move again, but in the opposite direction. To take the profit, you would sell at 12.75. This locks in a profit of 12.75 - 10.25 = 2.50 (£25), as whichever way the market moves, the buy/sell options will now cancel each other out.
We cannot leave spread betting without a warning. You can win big, but you can also lose big. It is not like a traditional bet where you bet £10 and that is the maximum that you can lose. Many spread bets can incur large losses (you don’t have to put up all the money you bet upfront). There are bets based on variables such as shirt numbers and the number of minutes and these can be very volatile markets.