It is 11am on September 21st 2019 as I write this. Earlier in the year I wrote an article about fixed-odds betting used to insure against political risk. I finished by saying I would investigate other modes, specifically currency conversion. This is that investigation.
The investigation took the form of recollections of previous betting combined with consideration of new modes. Time constraints meant that some modes could only be briefly examined so conclusions from this article should be taken as illustrative and advisory, not conclusive. If the reader notes any errors, please point them out.
The modes covered in the article are spread betting, fixed-odds betting and betting exchanges, bureaux de change, currency conversion and other modes such as tailored foreign exchange and political insurance. I consider them as follows:
Historically, British gambling regulation has been class based, with subdivisions such as horserace betting (literally the sport of kings!), telephone betting (used by the middle classes) and high-street gambling (working-class) attracting different regulation at different times. One of the odd tributaries of this phenomenon is the regulation of spread betting, which is governed by the Financial Conduct Authority (formerly the FSA), not the Gambling Commission. Spread betting accounts have a ferocious reputation: the majority of customers lose money, some lots. Consequently regulation has grown tighter.
In UK spread betting, you bet on the movement, not the level: one buys at level X, sells at level Y and the more the change, the greater the profit/loss. (US spread betting may be different and we do not cover it). This allows great profit to be made with little money, but the requirement to keep a float to maintain a positive balance and the possibility of great loss if the movement is in the wrong direction makes this high-risk/high-reward.
Opening an account requires bank details and proof of ID, and you are warned that losses may be large. I closed my account some years ago and changing regulation means that further checks and limits may now pertain. Political betting is availably from IG Index and Sporting Index. Sporting Index is familiarly known as “SPIN” and has a habit of suspending trading during uncertain times.
FIXED-ODDS BETING AND BETTING EXCHANGES
These are regulated in GB by the Gambling Commission, but difficulties in prosecutions and the anomalous position of Northern Ireland (not all legislation applies to NI and the suspension of Stormont and the different polity morals means that regulation has not yet caught up) means that some bookmakers insist they are regulated by overseas bodies such as the Malta Gaming Commission. That argument is best settled by lawyers.
In GB fixed-odds betting (we occasionally use the American term “sportsbook”, which I quite like), the bookmaker acts as the layer (betting against the future event) and offers odds. The punter is the backer (bets on the future event) and deposits money with the bookmaker until the event is resolved. In betting exchanges the bookmaker acts as matchmaker, with one punter acting as backer and another as layer. Unmatched money is returned to the punters on resolution.
It is medium-risk/medium-reward, with the possible profit and loss being fixed at the point the bet is made. It is freely available and can be done in-person via a high-street bookmaker or remotely via an online or telephone account. In-person betting ordinarily does not require an account or ID, but remote betting has bureaucracy. Political betting is available in-person or remotely via Ladbrokes/Coral and William Hill, or Betfair Exchange. Other bookmakers are available.
The above methods allow political betting on events directly, but one may be more concerned with the effects of the event and require proxy betting. Since my concern is on currency effects, currency was the obvious proxy. Betting on currency movements may be done via spread betting or (rarely) sportsbook/exchange betting, but currency conversion is also viable. Currency conversion may be done in-person via a “bureau de change” (a high-street kiosk that physically changes currency in one denomination into another) or online via dedicated foreign-exchange firms or foreign-currency accounts offered by some high-street banks.
Bureax-de-change are usually used for holiday money and may offer buyback facilities: buying and selling at the same exchange rate for a limited period. They require no registration and are zero-risk, but will have a poor exchange rate and carrying large amounts of cash is difficult and raises eyebrows. An online foreign-currency account only requires an existing bank account and is low-risk/low-reward, as adverse positions can be traded out of rapidly. But to cover a sufficient risk requires moving a lot of money, which brings its own problems. Bureaux-de-change can be found via yell, a foreign-exchange firm is Travelex. For foreign-currency accounts, please see the high-street banks.
There exist tailored foreign exchange services (for example Tramonex, which went but last year) and political insurance via Lloyds (there are syndicates, such as AmTrust? Validus? Apols if these are wrong) but are aimed at corporate entities/very-high-net-worth individuals and are outside my weight-class: for example, Tramonex required 500,000GBP traded per annum, which is way outside my reach. I did not investigate these. Tramonex no longer exists (see here) and I did not research others. For Lloyds Political Risk insurance, please see here and other sources.
In the previous article I outlined my use of a fixed-odds bet to insure against adverse currency changes in the event of no-deal. I practice betting transparency, so I outline here my use in Q2-3 2019: numbers are given magnitudally to preserve some anonymity. Previous experience of spread-betting some years ago had been scary and counterproductive: lacking any knowledge of movement I could not make a profit and I closed my account in short order after a total three-figure loss. Some years ago I changed four-figures into USD, which was fun but walking around with a thick wad in your back pocket is obviously stupid, so I converted back at zero loss.
So since 2016 I have opened USD and EUR accounts and in Q2-3 2019 I started moving money en-masse, currently totalling low-five-figures in various USD and EUR accounts (gulp!). This is personally traumatic: moving large sums of money inspires fear, and lack of any real knowledge about currency movements inspires uncertainty. I deal with this by moving smaller sums at smaller intervals, which normalises the behaviour and reduces the trauma of a Large Event.
Today is September 21st 2019. The rates are 1GBP=1.13EUR and 1GBP=1.24USD. At those rates I have a low-three-figure profit in EUR but a mid-three-figure loss in GBP (converting back incurs an additional conversion cost!).
In the event of Deal, I guess EUR will pass 1.2 and USD will pass 1.3 within 48 hours of the announcement and my losses in GBP will be low-four-figures, at which point I will trade out with alacrity before they settle at over 1.3 and over 1.35 within the month.
In the event of No-Deal, I guess EUR will pass 1 and USD 1.15 within 48 hours before settling at 0.95 and 1.05 within the month: at that point I will remain in as my gains in GBP will be low-four-figures. I will let you know what happens.
Viewcode is a statistician who works in the private sector