The second of a series of posts looking on the different forms of political gambling looks at spread betting which before the exchanges were fully established was about the best way to make interesting and profitable political bets.
The spread firms take a market such as the number of seats will Labour win at the General Election and offer a spread of prices. Currently it is 332-342. If you believe that Labour will get more then you BUY at, say, £50 seat and for every one additional to the 342 buy price you will win £50. If you have called it wrong and they get less than 342 then you lose £50 for each seat below. Theoretically you could stand to lose 342 times 50 if Labour did nor win any seats at all – hence the real danger of getting into this sort of betting..
The process works the other way round if you think that they will get less than 332. You place a SELL bet and the price you get is the lower one. You win the agreeed amount for each seat less than 332 that Labour gets. Again your theoretical maximum risk would be 646 – the number of Commons seats.
To deal with these high levels of exposure you usually agree to a top and bottom limit when you place the bet so the most you could win or lose would be say 50 seats up or down.
Not all situations lend themselves to such a simple index as seats won. The firms will create their own index and say give 50 to the winner, 25 to the second and 10 to the third. This is how the London Mayoral Market worked last time. I figured that Norris would come second and the initial spread was 11.5-12.5. Given that he was almost certain to come third my risk was 2.5 – the gap with the third place index rating. My gain was 25 minus 12.5 multiplied by my staked amount.
In that bet I liked the security that my down-side risk was fairly limited. Effectively I was getting 4-1 on him coming in second. To make this market more interesting a premium of 10 was placed on the index if a candidate got more than 50% of the vote. This put the spread on Livingstone above 50 and I placed a big sell bet.
The idea that the more you are right then the more you win is very seductive but there are huge risks involved.
At the 2001 General Election I was convinced that the Tories would do much better than the opinion polls were suggesting. I was right – the margin in votes cast was just 9% and the Labour lead on votes was down by 1.6 million. But this had almost no impact on the number of seats and I lost a lot of money. Fortunately my London Mayoral winnings more than covered this.
In writing this post I have been amazed by the lack of spread-betting political betting markets now being offered. It is clear that in this area spreads are on the decline and gamblers like me have moved to the betting exchanges.
The General Election seat market is fascinating because a very small switch between the Tories and Lib Dems could make a huge difference to the Tory seat totals and this is going to be very difficult to call. But if you want to bet on seat numbers then the offerings from the conventional bookmakers are more attractive.