Spread betting Spread betting is any of various types of wagering on the outcome of an event , where the pay - off is based on the accuracy of the wager , rather than a simple " win or lose " outcome , such as fixed - odds ( or money - line ) betting or parimutuel betting . A " spread " is a range of outcomes and the bet is whether the outcome will be above or below the spread . Spread betting has been a major growth market in the UK in recent years , with the number of gamblers heading towards one million . Spread betting can carry a high level of risk , with potential losses or gains far in excess of the original money wagered . In the UK , spread betting is regulated by the Financial Services Authority rather than the Gambling Commission . Purpose . The general purpose of spread betting is to create an active market for both sides of a binary wager , even if the outcome of an event may appear prima facie to be biased towards one side or the other . In a sporting event a strong team may be matched up against a historically weaker team ; almost every game will have a " favorite " and an " underdog " . If the wager is simply " Will the favorite win ? " , more bets are likely to be made for the favorite , possibly to such an extent that there would be very few betters willing to take the underdog . The point spread is essentially a handicap towards the underdog . The wager becomes " Will the favorite win by more than the point spread ? " The point spread can be moved to any level to create an equal number of participants on each side of the wager . This allows a bookmaker to act as a market maker by accepting wagers on both sides of the spread . The bookmaker charges a commission , or " vigorish " , and acts as the counterparty for each participant . As long as the total amount wagered on each side is roughly equal , the bookmaker is unconcerned with the actual outcome ; profits instead come from the commissions . Because the spread is intended to create an equal number of wagers on either side , the implied probability is 50 % for both sides of the wager . In order to profit , the bookmaker must pay one side ( or both sides ) less than this notional amount . In practice , spreads may be perceived as slightly favoring one side , and bookmakers will often revise their odds in order to manage their event risk . Spreads in sports wagering . Spread betting was invented by Charles K . McNeil , a mathematics teacher from Connecticut who became a bookmaker in Chicago in the 1940s . The idea became popular in the United Kingdom in the 1980s . In North America , the gambler usually wagers that the difference between the scores of two teams will be less than or greater than the value specified by the bookmaker . An example : Spreads are frequently , though not always , specified in half - point fractions to eliminate the possibility of a tie , known as a " push " . In the event of a push , the game is considered " no action " , and no money is won or lost . However , this is not a desirable outcome for the sports book , as they are forced to refund every bet , and although both the book and its bettors will be even , if the cost of overhead is taken into account , the book has actually lost money by taking bets on the event . Sports books are generally permitted to state " ties win " or " ties lose " to avoid the necessity of refunding every bet . A " teaser " is a bet that alters the spread in the gambler ' s favor by a predetermined margin – in American football the teaser margin is often six points . For example , if the line is 3 . 5 points and the bettor wants to place a teaser bet on the underdog , he takes 9 . 5 points instead ; a teaser bet on the favorite would mean that the gambler takes 2 . 5 points instead of having to give the 3 . 5 . In return for the additional points , the payout if the gambler wins is less than even money , or the gambler must wager on more than one event and both events must win . In this way it is very similar to a parlay . At some establishments , the " reverse teaser " also exists , which alters the spread against the gambler , who gets paid at more than evens if the bet wins . Bets on the total ( over / under ) . In addition to the spread bet , a very common " side bet " on an event will be the " total " ( commonly called the " over / under " or " O / U " ) bet . This is a bet on the total number of points scored by both teams . Suppose the Redskins are playing the Giants and the total is set at 44 . 5 points . If the final score is Redskins 24 , Giants 17 , the total is 41 and bettors who took the " under " will win . If the final score is Redskins 30 , Giants 31 , the total is 61 and bettors who took the " over " will win . The total is popular because it allows gamblers to bet on their overall perception of the game ( e . g . , a high - scoring offensive show or a defensive battle ) without needing to pick the actual winner . In the UK , these bets are sometimes called spread bets , but rather than a simple win / loss , the bet pays more or less depending on how far from the spread the final result is . Example : In a football match the bookmaker believes that 12 or 13 corners will occur , thus the spread will be set at 12 – 13 . In North American sports betting many of these wagers would be classified as " over - under " ( or , more commonly today , " total " ) bets rather than spread bets . However , these are for one side or another of a total only , and do not increase the amount won or lost as the actual moves away from the bookmaker ' s prediction . Instead , over - under or total bets are handled much like point - spread bets on a team , with the usual 10 / 11 ( 4 . 55 % ) commission applied . Many Nevada sports books will allow these bets to be used in parlay s , just like team point spread bets , making it possible to bet , for instance , " the Packers and the over " , and be paid if " both " the Packers " cover " the point spread and the total score is higher than the book ' s prediction . ( Such parlays usually pay off at odds of 13 : 5 with no " vig " , just as a standard two - team parlay would . ) Mathematics of spread betting . The mathematical analysis of spreads and spread betting is a large and growing subject . For example , sports that have simple 1 - point scoring systems ( " e . g . , " baseball , hockey , and soccer ) may be analysed using Poisson and Skellam statistics . Financial spread betting . By far the largest part of the official market in the UK concerns financial instruments ; the leading spread - betting companies make most of their revenues from financial markets , their sports operations being much less significant . Financial spread betting in the United Kingdom closely resembles the futures and options markets , the major differences being Financial spread betting is a way to speculate on financial markets in the same way as trading a number of derivative s . In particular the financial derivative Contract for difference ( CFD ) which in many ways mirrors the spread bet . In fact a number of offer both financial spread bets and CFDs in parallel using the same trading platform . Unlike fixed - odds betting , the amount won or lost can be unlimited as there is no single stake to limit any loss . However , it is usually possible to negotiate limits with the bookmaker : Spread betting has moved outside the ambit of sport and financial markets ( that is , those dealing solely with share , bonds and derivatives ) , to cover a wide range of markets , such as house prices . In a falling stockmarket , financial spread betting can also be used by investors as a means of hedging against predicted losses in a portfolio of shares . Tax treatment . In the UK and some other European countries the profit from spread betting is free from tax . The UK and some other European countries tax authorities designate financial spread betting as gambling and not investing , meaning it is free from capital gains tax and stamp tax , despite the fact that its regulated as a financial product by the Financial Services Authority in the UK . Most traders are also not liable for Income Tax unless they rely solely on their profits from financial spread betting to support themselves . The popularity of financial spread betting in the UK and some other European countries , compared to trading other speculative financial instruments such as CFDs and futures is partly due to this tax advantage . However , this also means any losses cannot be offset against future earnings for tax calculations . Conversely , in most other countries financial spread betting income is considered taxable . For example the Australian Tax Office issued a decision in March 2010 saying " Yes , the gains from financial spread betting are assessable income under section 6 - 5 or section 15 - 15 of the ITAA 1997 " . Similarly , any losses on the spread betting contracts are deductible . This has resulted in a much lower interest in financial spread betting in those countries . Financial spread bet example . Suppose Lloyds TSB is trading on the market at 410p bid , and 411p offer . A spread - betting company is also offering 410 - 411p . We use cash bets with no definite expiry , or " rolling daily bets " as they are referred to by the spread betting companies . If I think the share price is going to go up , I might bet £10 a point ( " i . e . , " £10 per penny the shares moves ) at 411p . We use the offer price since I am " buying " the share ( betting on its increase ) . Note that my total loss ( if LloydsTSB went to 0p ) could be up to £4110 , so this is as risky as buying 1000 of the shares normally . If a bet goes overnight , the bettor is charged a financing cost ( or receives it , if the bettor is shorting the stock ) . This might be set at LIBOR + a certain percentage , usually around 2 / 3 % . Thus , in the example , if Lloyds TSB are trading at 411p , then for every day I keep the bet open I am charged [ taking finance cost to be 7 % ] ( ( 411p x 10 ) * 7 % / 365 ) = £0 . 78821 ( or 78 . 8p ) On top of this , the bettor needs an amount ( AKA collateral ) in the spread - betting account to cover potential losses . Usually this is either 5 or 10 % of the total exposure you are taking on but can go up to 100 % on illiquid stocks . In this case £4110 * 0 . 1 or 0 . 05 = £411 . 00 or £ 205 . 50 If at the end of the bet Lloyds TSB traded at 400 - 401p , I need to cover that £4110 – £400 * 10 ( £4000 ) = £110 difference by putting extra deposit ( or collateral ) into the account . The bettor will usually receive all dividends and other corporate adjustments in the financing charge each night . For example , suppose Lloyds TSB goes ex - dividend with dividend of 23 . 5p . The bettor will receive that amount . The exact amount received varies depending on the rules and policies of the spread betting company , and the taxes that are normally charged in the home tax country of the shares . Dangers of financial spread betting . According to an article in " The Times " dated 10 April 2009 approximately 30 , 000 spread bet accounts were opened last year , and that the largest study of gambling in the UK on behalf of the Gambling Commission found that serious problems developed in almost 15 % of spread betters compared to 1 % of other gambling . In addition a report from Cass Business School found that only 1 in 5 punters ends up a winner . As noted in the report , this corresponds to the same ratio of successful punters in regular trading .