One of the defining characteristics of gambling is the element of risk. When we gamble, we're often putting up money in the form of a stake or wager, and embracing some degree of risk that we might lose the money. But that is matched by an expectation of more money if the going is good - when you win, you're quids in, when you lose, your stake is gone. No matter the type of gambling, from sports betting to blackjack to poker to roulette, the basic premise is always the same.
These parameters also exist in other spheres, like investing. When you buy shares in a company, you know there is an element of risk. In the worst case scenario, the company you buy shares in could completely collapse, leaving your shares worthless and hence forfeiting the entirety of your investment ‘stake'. More likely, the value of your holding will significantly decrease, costing you a portion of your capital. But when things go well, there are rewards on offer, similar to gambling. Indeed, some people view the activities of investment bankers as being akin to casino gambling, with similar levels of inherent risk.
So when it comes to the likes of financial spread betting, which occupies a middle ground between investing, trading and gambling, is it really indistinguishable from spinning a roulette wheel? In reality, while there are many technical similarities, the activities fundamentally differ on a few key points.
The first key area where spinning the roulette wheel and taking positions in financial spread betting differ is in risk. Say you've got £200 to play with, and you've split that down the middle into £100 for roulette, and £100 for financial spread betting. If you bet the whole lot on a single spin of the roulette wheel, you're in for a maximum liability of £100. Either your number comes up, and you win, depending on your bet type, at up to 35:1. Or, your number doesn't come up, you don't get lucky, and you end up losing your stake. It's a binary outcome in a sense - either you win, or you lose.
The same £100 in financial spread betting is much less binary, and as well as losing the £100, you can actually go on to lose a lot more. Financial spread betting isn't so much about the win or lose, but the degree of the win or loss - you can win by one point and make a very small return, or you can win by 100 points and walk away significantly richer. By the same token, your losses aren't limited to £100. For every point the markets move against your position, you're looking at another multiple of the stake added to your liability. So in reality, it's much more difficult to establish baseline losses, and the risk in financial spread betting is flexible in degree.
In this sense, the cold risks involved in roulette and financial spread betting are not comparable. With roulette, at least you know how much money in on the line. In financial spread betting, you don't find out until you close your position.
In practice, there are mechanisms you can use to reduce your exposure to losses in spread betting, like stop losses. But the fact remains that the risk profile for spread betting is potentially much greater on a single trade than on a single spin of the roulette wheel.
So roulette has a clear advantage in terms of the downsides - you know what you're exposing to losses on any given position, so there's very little mystery involved as to the total risk of your trade. But on the reward side, these same differences exist, and financial spread betting can easily outperform roulette on the upsides if you're willing to take the higher risk.
Returning to the example above, if you bet your £100 on a single number on roulette, and you got lucky, you'd be in for a win in the region of £3,500, given that most standard roulette wheels payout at 35:1. While that's a very solid return for a single winning spin, it is by definition capped at this level - you're not going to suddenly win 50x or 150x on a single roulette spin. These are the odds of the game, and there's not much you can do to increase them.
But with financial spread betting, your position can continue to increase in value, with each percentage point equivalent to a multiple more on your stake. So if your position increases by 40 points on a £100 stake, you've beaten your maximum reward from a roulette win, with the potential for further growth the longer you have your position open. In this sense, the two differ in terms of the rewards they can provide, albeit with a much higher risk profile in the case of financial spread betting.
It's also worth considering perhaps the key distinction between both these options - while roulette is a game of pure chance, where you either get lucky or you don't, financial spread betting has its roots more firmly secured in the skill camp. You can analyse financial markets, interpret news events and price movements, and make value-based judgements on which way an individual asset market is heading. In roulette, you can only cross your fingers and hope for the best.
While this means those with the best financial analysis skills will tend to do better in financial spread betting than chance, it correspondingly means anyone can be successful with roulette, regardless of skill or experience.
So it financial spread betting like spinning a roulette wheel? In some cases, there are similarities. But broadly speaking, these are two wholly different ways to risk money in the hope of financial rewards.
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