There are two major connotations for spread betting.
One applies generally to the gambling world. If you go to a Vegas sportsbook, you will find two ways to bet on the outcome of a game. First, you've got the money line. In that version, you pick a winner. Packers or Lions. Warriors or Rockets. You then get odds based on who is perceived the better team.
The second version is spread betting. In that setup, the odds are equal on both sides. Either side represents a 50/50 bet (usually...and not counting the casino's vig). However, one side will be awarded points. So...you might get Lions +4...meaning that, as far as the bet goes, the Lions get four free points over the Packers. If the Packers win 23-20, you still win your bet. The final score, as it applies to you, was 24-23 in favor of the Lions, since the casino spotted you those points to even the odds. The Packers, then, have to "beat the spread," i.e. win by more than the 4 points given.
That betting system represents the main general use of the term "spread betting." There's also a connotation within the financial world. This application involves betting within the spread between the bid and ask for a particular security. It's like a mix between a casino bet and a Wall Street one. You're not investing in a company or taking a position on a particular economic outcome. Instead, you're making an extremely short-term speculative wager.
This form of spread betting is a little like going down to the airport and betting on which suitcase will come out of the baggage claim carousel first.
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Finance: What is Spread?48 Views
finance a la shmoop. what is spread? before we start just no. get your mind
out of the gutter. spread refers to the money value between [100 dollar bill]
a bid and ask price under a market maker structure of trading securities. no more
wire hangers, a plastic hanger company is publicly traded on an exchange like
Nasdaq where buyers bid for a price to purchase and sellers ask for a price to [Nasdaq wall shown]
trade. no more wire hangers is bid this moment at 37:23 a share by buyers
willing to buy right now at that price and is being asked at this moment at a
price of 37.31. note the eight cents a shared difference in the share prices.
that dif is the spread between the two prices, and it's worth noting that in [bread is buttered]
extremely volatile stocks, the spread widens. and in boring highly liquid
stocks which don't move much, the spread tightens or is narrower. that is on a
volatile equivalent of no more wire hangers the spread might grow to 20 or
30 cents a share whereas a boring name that pays a big dividend and the stock
never moves much we're thinking AT&T here, [man snores at a desk]
well that spread might be just three or four cents. so why grow? well because a
market maker in a volatile stock doesn't want to be caught losing money on her
inventory. if no more wire hangers suddenly gapped down to 37.10 a share [equation shown]
well it would be likely less than the average of what the market maker paid
for her quote "inventory" unquote in that stock from which he was making a market
in it. each time the shares trade the market makers dip into that spread to [woman dips cracker in butter]
pay their bills and allow them to keep doing business. so that's spread. and it's
not the type that Prince used to sing about. [man on stage]
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Spread to treasuries is an indication of risk associated with a given debt or bond offering.