Internet Spread Betting Is Odds-On Favourite

by Philip Morton, InvestorsOffshore.com

27 April 2001

There's no doubt that the Internet has become the essential tool for private investors when it comes to buying stocks and shares. According to Apcims, the stockbrokers' trade body, 27.5 per cent of all private-client execution-only trades in the fourth quarter of last year were done via the Internet. The figure for the first quarter of 2001 is thought to have been around 33 per cent. As well as using the Internet to buy shares, investors have more access than ever to the growing phenomenon of spread betting. As more sites dedicated to this new form of investing (or should that be gambling?) spring up, bookmakers are vying with each other to develop the most user-friendly online trading system.

The worldwide tumble in share prices in recent months has sparked widespread investor alarm. The beauty of spread betting, however, is that it permits and individual to bet on markets which are falling as well as those on the rise. In spite of the downturn in the stock markets, personal wealth is increasing and there is a demand for new speculative opportunities. Cue spread betting, which is already a huge industry in the UK and is regulated by the country's Securities and Futures Authority.

IG Index was the first UK company to offer online trading. In the six months to November 2000, it took 14 per cent of its financial bets and 25 per cent of its sporting bets via the Internet. Its current system involves the customer holding a two-way online conversation with an IG dealer. Another bookmaker, City Index, is launching a similar system this week allowing customers to place their bets with dealers on the Internet. Sporting Index and Spreadex also have similar offerings in the pipeline.

According to Angus McCrone, who operates a spread betting website called Onewaybet, the leading bookmaker for online trading is Financial Spreads, which claims to be taking around 60 per cent of its bets online. Financial Spreads is being chased by Canto Index, which takes 34 per cent of its bets over the Internet.

Just as with stock trading, Internet betting is easy, convenient and rapid, although the larger bets are still placed by telephone. Its growing popularity in the UK has rubbed of on other countries. For instance, a new Irish online spread betting service - sportsspread.com - was launched recently which takes bets on the top quoted Irish stocks. Its managing director, Conor Foley, said it offers a viable alternative for those who want to punt on share price movements accepting the risk but avoiding broker commission, stamp duty and capital gains tax in the event of winning.

There is obviously an attraction in spread betting, but it is a risky business and by its very nature betting online, rather than by telephone, could lead to investors getting carried away. The same goes for their money.

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