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November 12, 2005

Spread Betting.

There’s something that puzzles me a little about this piece in the Telegraph.

Spread betting company Cantor Index says its clients have enjoyed a purple patch through playing the forex markets. David Buik says: "Spread betters in foreign exchange have had an excellent three months in selling the pound against the dollar at $1.85 in early September, taking profits in early October and going back in again to do the same trade at around $1.79 at the end of October. Today the pound stands at $1.7445.

It’s not just that it reads like an advertorial for Cantor Index. And I know the column is called "You Bet" but this:

Since August 2005 investors have been reaping profits from a number of financial markets.

Y’see, the thing is, this is spread betting, with Cantor setting the prices. Apart from the bookie’s take, it’s a zero sum game. Whatever is won by one punter is lost by another. So there are always investors reaping profits, just as there are always an equal volume of losses.

So the same article could be written exactly the other way round and still make just as much sense. Those buying the pound against the dollar at $1.85 in September have lost a bundle.

Maybe it wouldn’t act as such a good come on for Cantor Index though?

November 12, 2005 in Economics | Permalink

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Comments

Apart from the bookie’s take, it’s a zero sum game. Whatever is won by one punter is lost by another.

That's not quite true, from my understanding. On the financial markets, the spread betting companies often hedge their exposures on the traditional exchanges, so it could be that their clients all have a net gain, without the bookie losing anything. It would be the investors on the traditional exchange making the loss.

Posted by: Andrew | Nov 12, 2005 10:04:21 AM

yes, Andrew is exactly right here; it is perfectly possible (and not actually all that unusual) for all the clients of any one futures broker to be making money.

Tim adds: But all clients of all futures brokers cannot be.

If you read the first extract it does indeed mean what you say. The second is the one I was adressing with that point.

Posted by: dsquared | Nov 12, 2005 4:46:26 PM

Just to let everyone know about a new spread betting publication, due for release next month. 'Bets and the City' is the hilarious diary of a novice, female spread better. Think of this - Bridget Jones meets Wall Street; she's brave enough to enter a man's world and show women everywhere that girls can gamble too. City boys beware - the gauntlet has been thrown down and Sally's high-heels are well and truly dug in! Plus, to get you started on your spread betting adventure - there's a £50 reader offer inside the book. Happy reading! www.harriman-house.com/betsandthecity and www.sallynicoll.com

Posted by: Helen McCusker | Oct 24, 2006 3:35:38 PM