index wagering

Index Wagering

What is Index Wagering?

Index Wagering, or spread betting as it is known in England, is basically a market which applies the concept of financial futures markets to sports.

The fundamental principal of Index Wagering is the more right you are, the more you win, although the opposite is also true.

How does it work?

Instead of a price, players are quoted two numbers, for example

Market Price
Washington Winning Margin 2-4

Clients can either BUY at the high number (in this case 4) if they think the Redskins will win by more than 4, or SELL at the low number (2) if they think the Jets will win. The player must also nominate the stake at which he plays, for example:

BUY WASHINGTON $1 at 4

If the Redskins win by 7, the MAKEUP (final result) of the market will be 7

Our player will win THREE times his stake, in this case $3.

Equation: 7 (Makeup) -4 (point at which he bought) = 3 x $1 (unit stake) = $3

But if the Jets win by 3, the MAKEUP will be -3, and our player will lose SEVEN times his stake, or $7

Equation: -3 (Makeup) -4 (point at which he bought) = -7 x $1 (unit stake) = -$7

What is a Stop Loss?

The Stop Loss is a limit placed on markets that protects a player by limiting his losses. In the above market it is 25, which means the most a player can win or lose on this market is 25 times his stake.

e.g. for the player who Bought Washington $1 at 4, if the Jets should shock the Skins by winning 28-0, he can only lose $25 even though the final makeup will be -28.

What is the Locked Amount?

When a player places an Index Wager, the maximum amount he can lose on the bet (the Stop Loss multiplied by his stake) is "locked" in his account.

To Buy Washington $1 at 4, the player needs to have $25 in his account, because this is the amount that will be locked in his account. Once the market is graded, the locked amount is either credited to his account in full or partially if he has made a losing bet.

For example, say his balance is $47.

Once he places his bet (BUY Washington $1 at 4), $25 (his maximum loss) will be locked in his account and his balance will be $22.

If the Redksins win by 7, he wins $3 (see above example), so once the market is graded the $25 locked amount and his $3 profit will be credited to his account, making his new balance $50.

Equation:

$47 (opening balance) - $25 (locked amount) = $22 (new balance)

After the game

$22 (balance) + $25 (locked amount) +$3 (profit) = $50 (new balance).

If, however, the Jets win by 3, he loses $7 on his bet that will be deducted from his locked amount before it is returned to his account.

Equation:

$22 (balance) + $18 (25-7) = $40 (new balance).