Spread Betting >Definition and Purpose

Spread Betting
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Definition
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, which is known as money-line betting. Fixed-odds betting is a form of wagering against odds offered by a bookmaker, an individual, or on a bet exchange.

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 in recent years, with the number of gamblers well into the millions. As with all gambling, however, spread betting carries a high level of risk.

Purpose
The general purpose of spread betting is to create an active market for both sides of a wager, even if the outcome of an event may appear a priori to be biased towards one side or the other. In a sporting event, for example, a strong team may be pitted against a historically weaker team. Persons betting on the event normally would be likely to favor the better team, to such an extent that there would be very few, if any, betting on the team perceived to be worse.

The use of a "point spread" evens out the market towards an equal number of participants on each side of the wager. This allows a bookmaker to make a market by accepting wagers on both sides of the spread. The bookmaker charges a commission and acts as the counterparty for each participant. As long as the number of participants on each side is roughly equal, the bookmaker is unconcerned with the actual outcome; profits instead come from the commissions.