Betting on the Margins

Whilst some consider any form of investing on the stock exchange akin to gambling, there is one area where the world of gaming and financial services truly meet and that is the arena of financial spread betting.

Spread betting is one of the fastest growing forms of gambling. Invented in the USA by a maths teacher turned bookmaker called Charles K McNeil, it became popular in the UK in the 1980s. McNeil introduced what he referred to as "wholesaling odds." Previously gamblers had always been faced with a standard system of odds,eg 3 to 1 that Arsenal would beat Man chester United etc, McNeil would not only rate the teams and estimate who would win but also by how much. He then converted that into the point spread.It was an instant success and was quickly expanded.

Unlike convention betting where a person gambles a predetermined amount on the out come of an event, for example a horse race or football match and stands only to lose that amount,the losses{and gains)from spread bet ting can be far greater, particularly in a turbulent market. This is because you are betting on the movement of,for example,a share or indices. If you bet that it will go up,the more it increases the more you win.However the more it falls the higher your losses.

For example, if you had made a $10 a point spread bet (ie win or lose $10 for every 1 cent the share price moved)on 13th March that Bear Stearns price would rise, by the close of business the next day you would have been $27,000 worse off, the equivalent loss of buying 10,000 Bear Stearns shares that day. By the 17th you would have been a further $28,000 out of pocket. To that would be added any charges the spread betting firm imposes.

To reduce the gambler's exposure many spread betting firms offer different services which cut the risk of incurring significant losses.

because of the risks Involved

by Marcus Killick

One of these is a "stop order" which closes the bet if the spread moves through a specified level. Stop orders don't prevent people from losing money, but they can put a limit on the amount lost.

Spread bets do have many advantages. Because they are synthetic (you don't actually own the shares) they are extremely flexible. You can bet over very short periods without the transaction charges associated with buying and selling the underlying shares. You can also bet "in and out", gambling whether the market will end inside or outside a particular range(i.e. bet on market volatility). Spread bets can also be made on movements between currencies. Being synthetics they are also not subject to the hours and restrictions of any given exchange.It is even possible to use spread betting to gamble on movements in house prices.

More conventional bets, where the amount that can be won or lost is fixed are also avail able. These include "over and unders" where the gambler bets whether the price of a share or indices will be over or under a predetermined level atsome future date. Binary bets operate in the same way.A spread betting firm will make a market in say whether the Dow Jones Index will close up on a given day. If it does close higher the binary bet will settle at 100, if lower then the bet settles at 0. Bets can also be placed that the Index will fall in which case the position is reversed.

The spread betting firm will offer a buy and sell price which are effectively the odds. A person placing a bet either wins or loses. Like "overs and unders" it is therefore a traditional fixed odds bet but quoted between 0-100.

Spread bets can also be used to reduce risk. If an individual has shares in a company which they wish to keep but want to reduce their ex posure to those shares falling in value, they can take a spread bet that they will fall (effectively hedging their position). This way if the shares do fall the money they win on the spread bet will mitigate the tosses on the shares themselves.

Spread betting often carries tax advantages over the ordinary purchase of shares, for ex ample in many places winnings are not subject to tax, whereas countries often impose a tax on gains in the price of a share.

There are, however,costs. To place a bet and to keep it open, a margin must be paid which consists of the margin requirement (typically 10% of contract value for shares) and the obligation to meet any ongoing losses in full. This reduces the firms exposure to default by a customer.Furthermore positions held overnight may also be subject to financing costs,

In Gibraltar financial spread betting is regulated by both the Gibraltar Regulatory Authority and the FSC. This is because it is not simply gambling but is also, where it relates to financial instruments, caught under the Financial Services (Markets in Financial Instruments) Act 2006, therefore falling within the FSC's regulatory scope.Spread betting on qualifying investments (such as shares)is also covered by the market abuse regime. This is because it is possible for such bet ting to be used for insider trading or other abuses.

The FSC regulates such firms as investment dealers. They are subject to the same regulatory and statutory requirements as other licensed firms, including on site inspections. In addition, because of the risks involved in this activ ity, the FSC has adopted a policy only to allow these types of firms to take on experienced investors as clients.

Spread betting firms are also required to comply with more onerous reporting requirements than other firms and must submit monthly financial returns and file daily transaction reports.

However regulation can only protect so far, Those interested in using these firms should always study the terms and conditions the spreadbetting company pro vides and it is to be aware of and understand them.These terms will vary from company to company. Stop losses may protect but are not perfect. Unlike the holding of shares, an investor cannot ride a downturn and hope the price will improve in the long run, at the end of the contract term the money is won or lost. In respect of this type of financial instrument, if you are risk adverse don't bet on it.

The current number of motor vehicles registered in Gibraltar is approximately 24,000 and by law must be insured to be used on the public highway.Trafalgar,the retail arm for Ibex Insurance in Gibraltar, are one of the insurance providers attending to the needs of local mo torists, and more.

Bill Pisani, Trafalgar's vastly experienced Manager, has worked in the local insurance industry for over22 years and hasseen Trafalgar grow rapidly since Ibex opened their Centre Plaza office in August 2005. With a solid, loyal and ever expanding customer base the firm is well placed to provide a whole range of very competitive insur ance products.

"We offer an online service at www.trafalgardirect.com and are the only local company who can boast that we provide cover for our customers 24 hours a day and 365 days a year! The online service has continued to grow in popularity though many customers still choose to effect their cover in our office he explains. When setting up the new office in 2005 we decided that the traditional and rather impersonal counter and queue system was not for us and we opted instead for an open-plan layout which ensures every Trafalgar customer can sit face to face with our staff to discuss their requirements.

"Our state of the art computer software then enables us to pro duce full policy documents in just minutes and the client doesn't even have to hand write a proposal form as we do that with them! A com petitive price is of course essential but we have always believed that providing excellent service is ab solutely crucial.

"Our renewal retention is very high and this is probably the best indicator of customer satisfaction, though we continue to seek innova tive ways of further enhancing the service we give."

Apartfrom insuring thousandsof Gibraltar's motorists,Trafalgar pro vide Household cover for all types of residential properties across the

Rock. Philip Langley, Operations Manager at the Ibex Marina Bay office explains that,"Many people have the impression that this type of cover must be expensive though our minimum premium starts at just £75.tX) per annum.

Our policy provides valuable cover against burglary, fire, storm damage. Escape of water from domestic water installations/appa ratus and much more.The financial upheaval and misery which the un insured householder could face as a result of a fire makes Household cover essential in our opinion. We will even cover the cost of tempo rary accommodation in the event of the home becoming uninhabitable as a result of an insured peril.

"Burglaries in Gibraltar are still thankfully a fairly rare occurrence though theft from local homes has been seen to increase in recent years. We also provide cover for SpcUiish properties where the burglary risk is considerably higher and accord ingly minimum security require ments would include such things as bars on windows and mortice locks on doors," explains Bill Pisani,"In these cases we encourage good security arrangements by allow ing an additional discount to those policyholders who have a direct alarm connected to a recognised security company."

A relatively new addition to the Trafalgar product range is Pet Insurance for cats and dogs."It's a kind of Medical Insurance for pets!" says Bill, but covers much more, such as death by accident or illness, loss by theft or straying,advertis ing costs for a lost pet and payment of boarding fees should the owner ever become hospitalised.

"Cover is available for pedigree or cross breed animals aged from 8 weeks to 10 years and we only ask that they be micro-chipped, registered with a Veterinarian and in possession of all necessary docu mentation," explains Bill."Though innovative in Gibraltar the product has proved to be popular with local pet owners and we are delighted at the response we have had so far."