London: The credit crunch has sparked a surge in spread betting in Britain, as people speculate tax-free on the financial markets rather than sink their capital into turbulent stocks.
With no taxes to pay and no commission charges, spread betting has increased in popularity as nervous investors worry about expanding their portfolios of company shares.
Rather than regular betting on a precise outcome, spread betting allows punters to gamble on a range of outcomes, with the accuracy of the wager determining how much is won - or lost.
“We have seen a significant increase in betting numbers and trades in alignment with the volatility in the market,” Peter O’Donovan, head of financial spread betting at PaddyPowertrader.com, told AFP.
“We have certainly been busy since July 2008. The turmoil in the market certainly seems to have stimulated our business.
“Equities and indices are among the busiest sectors,” he said, adding that applications for spread betting accounts have almost doubled over the past 12 months.
Financial spread betting sees punters betting on the rise or fall of currencies, stock markets, shares, futures and metals, without having to pass through stockbrokers and share purchasing paperwork.
The closer the bet is to the result, the bigger the gain, but the further off the mark it is, the higher the loss.
Punters, who must hold accounts with the bookmaker, could even lose more than their original stakes. However, limits are put in place to avoid extreme gains or catastrophic losses.
“Spread betting carries a high level of risk and you may lose more than your initial investment,” said a spokesman for the spread betting information website CleanFinancial.
He added: “It may not be suitable for all investors. People should speculate with money that they can afford to lose.”
Financial spread betting “is a tax-free, commission-free alternative to trading shares and financial markets,” O’Donovan said.
“You are essentially betting on the performance of a share, index or commodity. You don’t own the share itself, you merely use it as an underlying instrument for your betting.”
The nine-percent betting tax was scrapped in 2001, but in contrast people buying shares still have to pay stamp duty upon purchase and tax on their dividend at either 10% or 32.5%.
Bookmaker Ladbrokes takes bets on market changes on a five-minute, hourly or daily basis, on currencies, commodities and indices.
“Turnover varies from day to day but on average the figure is approximately 75,000 pounds per day. The five-minute markets are the most popular,” a Ladbrokes spokesman told AFP.
Professor Chris Brady and Doctor Richard Raymar, from the Cass Business School in London, said in a 2006 report that 400,000 spread betting accounts were open in Britain at the time.
They predicted the figure would hit the million mark in 2011.
CleanFinancial said spread bettors are typically men aged 35 to 55 who work in financial circles, often self-employed. Big banks ban some of their employees from spread betting, the spokesman for the site said.
Irish bookmaker Paddy Power, one of the largest in Britain and no slouch on offering novelty bets, was taking bets on which bank would be next to fall, but suspended such betting in mid-September.
At the time, the largest bet - 5,000 euros - was on Washington Mutual at odds of 4-9. The savings bank collapsed on 25 September. Its closure and receivership is the largest bank failure in US financial history.