Financial Spread Betting News

Spread Betting continues to soar

Spread betting's popularity continues to soar despite an ongoing probe by the FSA, with many spread betting firms confident that demand for their services will remain high.

The industry's optimism has been boosted by the launch of two new financial spread betting services in the UK, allowing punters more choice to bet on movements in major world exchanges, indices and commodities markets. According to estimates, there are between 50,000 and 100,000 account holders in the UK with demand for spread betting - both sporting and financial - growing at a rate of 25% a year.

The industry says the internet has fuelled growth by making trading information rapidly available in the homes and on the laptops of a new global pool of punters. 'Stocks and shares are no longer the playground of yuppies,' says Will Armitage, senior quoting trader at IG Index.

Seizing on the online popularity is ETrade, the UK's oldest internet-based stockbroker, which recently launched its spread betting service. ETrade has 3.5 million existing trading clients worldwide and is offering rolling daily and futures-style bets on financial markets covering UK and global shares, stock market indices, major currencies, commodities and fixed interest products such as corporate bonds, in line with that offered by most providers.

Interactive Investor, which has 1.4 million trading customers, has also joined the fray with the launch of its spread betting platform - white-labelled through Finspreads, a subsidiary of IFX. Interactive claims to have the lowest minimum bet size in the UK of just 50p.

The emergence of new competitors is a robust sign for an industry which less than eight months ago was told by the FSA that the risk warnings on some of its promotions were inadequate. With the FSA said to be keeping a close eye on the sector, the new entrants are going to greater lengths to raise awareness of the risks involved in spread betting.

Interactive Investor is offering a free eight-week online course to educate new clients on aspects of spread betting - from how markets work to the mechanics of trading. The course, which has signed up 500 clients already, is an innovative advance on the information evenings already held by other established firms. ETrade is also planning seminars for its new clients and says it emphasises that customers can place stop-loss facilities on their bets, which halts trading at pre-set points.

'We understand fully why the FSA is doing what they are doing,' says James Elias, head of UK retail at ETrade. 'With every communication that goes out we highlight very clearly the risks associated with spread betting.'

Traders Go Short of the DOW and Tech Stocks, Long of Banks

Spread betting punters have moved decisively short of the Dow and the Nasdaq, on the view that the recent jump in those indices has left them ripe for a setback.

Bookmakers said however that traders were balanced on the FTSE100 index, with as many bulls as bears.

Finspreads said that its clients were long the German Dax but short of the Dow, while CMC/deal4free reported that its customers were short of both the Dow and the Nasdaq.

Among individual stocks, bookies reported strong interest in the banks, with punters overwhelmingly long, and also in BP and Shell. Most traders were long of the oil majors too.

Punters have been bullish of FTSE250 stocks, encouraged by the heady performance of the mid-cap index.

However the mood has been bearish in recent days towards technology stocks and telecommunications.

Finspreads said punters are mostly long of gold and oil - despite the latter's move above $50 - but short of the dollar against other currencies such as the euro and the pound.

CMC also reported that punters are bullish of gold, silver and oil.

New options for armchair punters

Financial spread betting companies are taking a confident gamble that demand for their services will remain in good form, despite in spite of an ongoing probe by UK regulatory authorities.

The industry's optimism has been bolstered in recent weeks by the launch of two new financial spread betting services in the UK, allowing punters more choice to bet on movements in major world exchanges, indices and commodities markets.

According to industry estimates, there are currently 50,000-100,000 account holders in the UK with demand for spread betting - both sport and financial - having grown at a rate of 25 per cent annually in recent years.

The industry cites many reasons for the growing appeal of spread betting over fixed odds, or other forms of betting. The first being that financial spread betters can gain from falling as well as rising marketstrade, a major attraction during bear markets.

Unlike conventional trading, spread betters can also dabble in the stock markets without paying stamp duty, dealing commission or brokerage fees. And Winnings are also tax free.

The industry says the internet has fuelled growth by making trading information rapidly available in the homes and on the laptops of a new global pool of punters.

"Stocks and shares are no longer the playground of yuppies," says Will Armitage, senior quoting trader at IG Index, an established spread betting firmbusiness.

Seizing on the online appeal is ETrade, the UK's oldest internet-based stock broker, which this week launched its spread betting service.

ETrade, which has 3.5m existing trading clients worldwide, is offering rolling daily and futures-style bets on financial markets covering UK and global shares, stock market indices, major currencies, commodities and fixed interest products such as corporate bonds, in line with that offered by most providers.

Interactive Investor, which has 1.4m existing trading customers, also joined the fray last month with the launch of its spread betting platform, which is white-labelled through Finspreads, a subsidiary of IFX. Interactive claims to have the lowest minimum bet size in the UK of just 50p.

The emergence of new competitors is a robust sign for an industry which less than eight months ago was told by the Financial Services Authority that the risk warnings on some of its promotions were inadequate.

This action translated into a £70,000 fine against Cantor Index, an established playeroperator, for misleading promotions. The FSA said Cantor had failed to explain sufficiently a key risk of spread betting - that you can lose substantially more than your initial stake if the spread moves in favour of the broker.

With the FSA said to be keeping a close eye on the sector, there are signs that new entrants are going to new greater lengths to raise awareness of the risks.

Interactive Investor is offering a free eight-week online course to educate its new clients on aspects of spread betting from how markets work to the mechanics of trading.

During the course, clients are limited to 1p per point stakes with the minimum stake rising to 50p after the eight-week period.

The course, which has 500 clients signed up, is an innovation advance on the information evenings already held by some established firms.

"We are trying to get customers to learn about the product and how losses and profits will translate from a 1p bet," says Interactive Investor's Jim Lloyd.

Lloyd admits that more than half of his clients will lose initially, until they become more experienced. "If they don't win we hope they will hopefully stop using the product," he says.

ETrade is also planning seminars for its new clients and says, like other firms, it emphasises that customers can place stop-loss facilities on their bets, which halts trading at pre-set points.

"We understand fully why the FSA is doing what they are doing," says James Elias, head of UK retail at ETrade. "With every communication that goes out we highlight very clearly the risks associated with spread betting."

While UK-based firms are being watched, for their promotionsa new competitor entering the market on Monday won't be facing the same scrutiny from the regulator.

Futuresbetting.com is a new online service targeting a niche market of highly experienced UK financial futures and commodities traders. But, as the spread betterit is based in Gibraltar, its promotions and activities won't be scrutinised by the FSA.

Spread betting is spreading fast

Jenne Mannion looks at why gambling on price movements is rapidly gaining in popularity

Financial spread betting has come of age. About 100,000 Britons are thought to have active spread betting accounts and the number is growing by about 33 per cent a year. They bet on financial data such as commodity prices, index movements or standard share prices.

Fistful of dollars: spread betting has come of age

Another indication of the growth in popularity is the number of spread betting companies. Four years ago there were only three main players: Cantor, City Index and IG Index. Since then, the figure has more than trebled.

Interactive Investor, the online investment service, joined the fray last month with the launch of a spread betting service linked to FinSpreads, another operator. Interactive Investor has more than 1.4 million account holders, many of whom are sophisticated investors. Just two weeks after launch, more than 500 of these clients have signed up for the spread betting service.

The group also offers a free eight-week course covering all aspects of spread betting. Course notes are e-mailed to participants (who can start the course at any time), with the aim of achieving a good understanding of the subject before they place a trade.

So how does spread betting work? It is similar to ordinary betting, but there are important differences. With fixed-odds betting, such as horseracing, you are either absolutely right (your horse wins and you win a sum whose size is dictated by the quoted odds) or you're absolutely wrong (your horse doesn't win and you lose your stake).

With spread betting, the more right you are, the more you can win - but the more wrong you are, the more you can lose.

Andrew Edwards, the head of trading at ETX Capital, says: "A particular company will quote a range, known as the spread, of where a particular financial instrument is expected to end up on a given date." For example, ETX Capital was last week quoting a spread for the FTSE100 futures index of between 4,952 and 4,958 on March 15.

"The customer can bet on whether the price will be higher (buy) or lower (sell) than the company's spread prediction at that date. A standard amount to bet is £1 per point, though this can vary."

The major risk with spread betting is that if a bet goes wrong you are liable for more than your initial outlay - potentially thousands of pounds, depending on the size of the bet. If you invest in traditional shares, by contrast, the most you can lose is their full value.

The risk when spread betting can be reduced by setting predetermined stop-loss limits, however. Stop-loss limits are offered by many spread betting firms - and, indeed, enforced by some, including ETX Capital and Capital Spreads.

The Financial Services Authority is investigating the industry because it is concerned that firms are downplaying the high levels of risk. Last December Cantor Index was fined £70,000 for failing to warn customers adequately about the risks of spread betting in one of its promotions.

It is rumoured that another firm is about to be fined for a similar reason. And, irrespective of stop-loss limits, there is a good chance that you will end up losing your outlay as the odds are stacked in favour of the spread betting companies.

Simon Denham, the managing director at Capital Spreads, says: "It's generally considered that about 80 per cent of bets lose, a level comparable with the experiences of private traders on the various worldwide futures exchanges. However, of the 20 per cent that win, some make very high returns on their money."

Provided you are fully aware of the risks, spread betting offers several advantages. One major attraction is the ability to magnify returns. A spread betting customer can capture a much bigger return on funds as a percentage of initial outlay. A £10 bet on a UK share offers the equivalent market exposure to holding 1,000 shares in that company, irrespective of the actual price of the shares.

For example, if you placed a £10 spread bet on Marks & Spencer shares, you would make a profit of approximately £10 for every 1p the share price gained (or lose £10 for every 1p it fell). If you were to buy 1,000 M&S shares at the current price of about 360p, you would have to cough up £3,700, plus commission and stamp duty. So the initial outlay on a spread bet would be far less to achieve the same potential outcome.

Capital Spreads requires a minimum deposit of 3 per cent of the underlying value of the shares, so you could gain the same market exposure with a £10 bet on Marks & Spencer for a deposit of only £111 (3 per cent of £3,700).

Denham adds: "A common problem is that the small deposits required to run positions often tempt clients into taking bigger positions than they would otherwise do when trading in the real shares."

A further advantage is that - unlike traditional shares, commodity or index-based investing, where profits rely on upward price movements - you can benefit from falls with spread betting. You can, for example, bet that a share price will fall, or that the gold or oil price will drop.

And because spread betting is regarded as gambling, you do not pay stamp duty on bets and any gains are tax-free. The flip side is that you cannot offset losses against tax.

The most popular targets for spread betters are the major indices such as the FTSE100, the Dow Jones and the Nasdaq. The top 50 shares in the UK market are also popular among UK enthusiasts. More recently, the gold price and dollar movements have attracted strong interest.

It is easy to start a spread betting account. You sign up online and open an account with a debit or credit card. Provided the spread betting firm can verify your identity, you could be up and running in as little as 10 minutes.

Irish betting company to enter British market

Online betting company SportsSpread plans to enter the lucrative British market and raise up to €3.5 million in new funding.

The company, which is backed by the former Irish soccer international Kevin Moran, has received approval from Britain's Financial Services Authority to begin trading.

"This has been a long stated aim of this group and the group will launch its product in the UK in early 2005 through a wholly-owned subsidiary Worldspreads Limited," the firm said in accounts just filed at the Companies Registration Office.

SportsSpread offers traditional sports betting and is heavily involved in the fast-growing spread market for sports and financial products.

The company was set up four years ago by former BNP Paribas currency trader Conor Foley and its directors include Mr Moran and the former Smurfit Stone Container Corporation boss Ray Curran. SportsSpread employs 20 people in their head office in Dublin and the company also has an office in Newry, Northern Ireland.

Spread betting turnover for the year ended 31 March 2004 increased from €50.5 million to €62.2m. Net income from spread betting rose from €1.4m to €1.8m.

Traditional, or fixed odds, betting turnover increased from €7.7m to €8.1m, though its winning bets income was flat at roughly 344,000.

Overall, the company's pre-tax loss for the year widened to 190,097 from 32,852 the previous year. SportsSpread said this was because of a charge of €287,000 to set up a British office. It also absorbed the Government's betting levy again rather than pass it on to punters. This cost the firm nearly €105,000.

"Overall, the directors are satisfied with the performance of the group in the last year and that it will become profitable in the next financial year. In connection with its entry into the UK market, the group has been engaged in a fundraising process to raise up to €3.5m for the issue of new convertible loan stock," the directors added.

Two years ago the company raised €3m from investors through IIB Bank and Merrion Capital and the firm was valued at €11m.

The company attributes its growth to a focus on two key areas excellent customer service and lower margin prices.

Punters long of Gold, Silver and Oil Stocks

Commodity fever is continuing to grip spread betting traders, with many people holding large up-bets in gold and silver and others chasing the in-fashion oil exploration stocks.

Capital Spreads said that its clients were very long of precious metals at the start of this week, with punters also holding onto smaller long positions in other primary products such as wheat, coffee, copper and natural gas.

IG Index said that many punters were bullish of gold on a long term view, and it was also seeing a lot of interest in oil shares, such as White Nile, Regal Petroleum and Sibir Energy.

Capital said punters were buying into both oil stocks and banks.

A fortnight ago, many spread betting punters were short of the FTSE100 index, looking for a setback from the 5000 level.

Even though that barrier has been well and truly breached, a lot of people are still clinging onto their shorts from below that level, and others have opened down-bets from further up, according to Capital Spreads.

IG said that its punters were tending to go short of the Dow each time it approached the 10,870 barrier.

As far as foreign exchange bets are concerned, traders seem to have moved from a trending philosophy to a tactical one, looking to buy the dollar at the bottom of its range against the euro and sell it at the top.

Sentiment however remains fairly bullish on sterling, with people anticipating another UK interest rate rise.

Industry Update

The spread betting industry is being closely watched by the Financial Services Authority (FSA) as its appeal to investors soars. Following last December's £70,000 fine against Cantor Index, spread betting firms are under pressure to ensure their advertising is up to scratch. Cantor was fined because the regulator said it failed to warn consumers adequately about the risks of spread betting in a promotion that promised a hand-held computer to new customers. In a sector starting to look over-crowded, other firms can ill afford to make the same mistake.

You can often sense an industry is coming of age when the regulator starts to pay close attention to it. Demand has never been higher for spread betting as investors are waking up to the fact there are short-term gains to be had from falling shares and sideways markets. But the FSA is right to ensure that investors understand the pitfalls, as the glamourous advertising can be very appealing until you see the risk warning tucked away in the corner. New customers should not be allowed to deal unless they can grasp the concept of gearing and realise they are at risk of losing far more than their investment.

Indeed, it is estimated that around 80% of traders lose money. Active spread betters are now thought to total around 100,000, a figure growing at about 25% a year. So you don't need to be a rocket scientist to work out why there is huge investor interest in the sector of late. Last week's news that IG Index was looking to float on the stock exchange again caused shares in IFX, the only listed spread betting company, to jump 15% in two days. The company was forced to comment, saying it had received a takeover offer at less than its share price.

There are now around a dozen spread betting firms, with only four or five thought to be profitable - big guns such as IG, City and Cantor. Insiders reckon the sector is ripe for consolidation, which would significantly boost profits. Spread-betting firms have been substantially re-rated in recent weeks in expectation of mergers in the sector. Spread betting is more volatile than traditional share-broking. Short-term traders are not the most loyal of customers and tend to shop around for the best available spreads. But this is made up for by volume, as spread betters deal more frequently and their numbers are growing. Whether investors are shunning equities for margin trading remains to be seen, but there is no doubt that spread betting is now seen as a viable, cost-effective alternative. Not just a much riskier one.

Traders add to their shorts on FTSE ahead of 5000

The recent upswing in the FTSE100 index to 4950 has caught many spread betting punters on the hop, but undeterred, they are extending short positions in the hope of a setback near the 5000 resistance level.

Bookmakers said clients were net short of all the main indices this morning, apart from the Japanese Nikkei, where they were net long.

IG Index reported that it had seen lots of selling of the FTSE today as the 5000 level approached. The UK index was last above 5000 in the second quarter of 2002, before a heavy sell-off that summer.

In other financial markets, Finspreads said that traders were bullish of the pound and of gold. The view seemed to be that the dollar's recent strength would not persist.

IG said that punters have been long of the gold price from around $420 and the subsequent slide to $415 or so has not shaken them out of that position.

One of the trades where punters appear to have done is in bonds, where many people took long positions in the Eurobund future in the hope that it would rise to 120.00. It did that on Friday on the back of weaker than expected US non-farm payroll figures.

Promotion of spread betting faces FSA scrutiny

The Financial Services Authority is scrutinising the spread-betting industry for evidence of misleading promotions and mis-selling.

The probe follows the £70,000 fine levied by the FSA last December against Cantor Index, one of the leading spread-betting firms. The watchdog said Cantor had failed to warn consumers adequately about the risks of spread betting in a promotion that promised free gifts, such as a hand-held computer, to new customers.

The FSA said yesterday: "Spread betting is an area under a great deal of scrutiny. We have already fined one firm for mis-selling."

The regulator is understood to be concerned that other companies have used similar promotions to advertise spread betting. The practice enables traders and investors to gamble on price movements in anything from shares to metal prices for a small amount of capital.

The market is becoming increasingly competitive and spread-betting firms rely heavily on advertising to boost investor awareness of their products. The City watchdog said the Cantor Index advertising campaign which was launched in September 2003 and included handing out fliers at London tube stations was misleading.

It said Cantor did not sufficiently explain the risks of spread betting, where investors can lose much more than their initial stake. It also attracted the attention of less experienced investors and did not ensure that they were likely to understand the risks, the FSA said.

The regulator has been increasingly vigilant in ensuring that companies feature risk warnings more prominently on their advertisements. "The industry has been under close scrutiny for the past two years. The FSA has gone to great lengths to tell companies they must comply with its rules on advertising," said David Buik, a Cantor Index spokesman.

Compliance costs have mounted for the industry as the FSA has increased regulation and capital requirements.

IFX shares go into reverse as putative takeover proves abortive

Shares in IFX fell more than 5 per cent to 118½p yesterday as the spread-betting company revealed that talks about a possible bid had failed.

The company, which offers online spread-betting and foreign exchange trading, announced on Tuesday that it was in talks with a undisclosed bidder. The Takeover Panel had asked the group to clarify the position after its shares had risen 15 per cent in two days.

IFX said the offer, believed to have been pitched at 120p early in the new year, would value IFX at a small discount to the shares.

Talks foundered after the bidders failed to raise their offer.

A number of suitors are known to have informally looked at IFX. Shares in IFX, which is the only listed spread-betting company, have recovered from the low in October of 76½p as profits recovered on the back of improving markets.

Its shares rose in December when Vincent Tchenguiz, the brother of Robert and co-owner of Rotch, the property group, made it known that he was interested in buying up to 20 per cent of the group. He has bought contracts for difference (derivatives) representing 3.3 per cent of IFX.

The shares bounced again this week on reports that rival spread-betting firm IG Index, which was taken private less than two years ago by CVC Capital was shortly to appoint advisers to look at its strategic options.

CVC indicated it was considering bringing IG back to market. CVC, which bought IG Index less than two years ago for about £140m, was said to be considering floating the company at close to £250m.

It is understood that neither IG Index, Mr Tchenguiz or Shore Capital, the UK independent stockbroker that was also rumoured to have expressed an interest in the group, were in bid talks with IFX.

Tradition, the UK arm of Swiss money broker Compagnie Financière Tradition, last year took a 10 per cent stake in IFX. However, the company has denied it was thinking of taking over IFX.

IFX hints at strained dealings with bidder

IFX, the only London-listed spread betting group, yesterday issued a curt statement confirming it had received a takeover approach from an unnamed potential bidder.

The statement was released after the group's share price continued Monday's rally, jumping almost 8% in early trading as rumours of an imminent bid strengthened.

However, the statement warned the approach related to a potential offer that would valued IFX shares "at a small discount" to the current share price. Shares, which gained 9p to 123p in morning trading, were changing hands at 119p when the statement was issued, suggesting the putative offer was likely to value IFX at less than £34m.

The short statement hinted at strained relations with the prospective bidder. "This announcement is not being made with the agreement or approval of the potential offeror," it said.

Excitement around IFX follows reports that private equity backers at rival spread betting firm IG Index are considering returning the business to market. CVC Capital Partners is discussing returning IG to market just two years after taking it private in a £143m buyout. Some suggest IG could be valued at more than £250m on flotation.

Such a valuation has thrown a spotlight on IFX, where serial entrepreneur Vincent Tchenguiz has recently declared his intention to build a stake of between 10% and 15%. So far, he holds 3.35%. Other interest is said to be coming from Shore Capital. Last week the stock broker confirmed it had hired NM Rothschild, the merchant bank, to advise on acquisition opportunities.

A year ago IFX's former management team sold the last of its 33% stake in the business, passing a 10% holding to Swiss-listed rival Tradition. At the time chief executive Edmond Warner, who is also a Guardian columnist, said he was "extremely pleased" with the deal.

Stockbroker Teather & Greenwood said yesterday it had backed an offer from Icelandic bank Landsbanki Islands valuing the group at £42.8m. The deal is expected to lead to windfall payouts to directors and will strengthen the group's market-making and deal financing capabilities. Meanwhile, Durlacher announced it had agreed a merger plan with Panmure Gordon, the stockbroking arm of Lazard, valuing the enlarged business at £80m.

Punters flock to IFX

IFX Group, Britain's only listed spread betting group, hit its highest level since April last year yesterday amid talk that it could be a takeover target for a larger rival.

Its shares rose 8p to 114p, with some City punters convinced the company - in which Vincent Tchenguiz, the property entrepreneur, has built a 3.35% stake - is already in talks with a bidder. Others said a better explanation for yesterday's rise was the news that emerged at the weekend that IG Index had appointed advisers with a view to a stock market flotation. The company, which also runs spread betting, added in a statement on Tuesday that any possible offer would be "at a small discount" to its current share price.

IG was reported to be looking at a valuation of between £250m and £300m, which makes IFX look reasonable value.

The company has a market value of £32m and about £15m of cash on its balance sheet.

IG Index bets on return to stock market

SPREAD-BETTING group IG Index is in talks with advisers about a possible return to the stock market less than two years after it was taken private in a £143m buyout.

The firm's owner, CVC Capital Partners, a leading buyout house, has begun contacting investment banks to invite them to pitch for a mandate to advise the business on a possible flotation. Sources said that IG, founded by millionaire Tory party donor Stuart Wheeler, could be worth between £250m and £300m today.

More than half a dozen banks and stockbrokers have been sounded out about advising on a deal, including Collins Stewart, Merrill Lynch and UBS.

A spokesman for CVC said: "We can confirm that we are in the process of appointing financial advisers to evaluate the strategic options for IG Group, including a float.

"No final decision has been taken. When any of the options has been agreed, an announcement will be made. We have no further comment to make at this stage."

While a trade sale has not been ruled out, it is understood that a flotation remains CVC's preferred route to exit its investment. "The business is really motoring," said one industry source.

By trying to float IG Index in the first quarter of this year, CVC may be able to capitalise on the growing appetite for betting-related companies by institutional investors.

Gaming VC, which floated on the Alternative Investment Market last month, has seen its shares rise by 49.5%, while online poker group Party Gaming appointed Dresdner Kleinwort Wasserstein and Investec as advisers last week to examine a possible flotation. If it decides to go public, it would be big enough to qualify for the FTSE 100 index of Britain's biggest companies.

But a flotation of IG Index would also represent a swift return for CVC. Traditionally, private-equity groups hold companies for between three and five years. While an exit after two years is not unheard of, it is rare.

Much of the recent growth at IG is said to have come from the launch of a new product known as "binary betting". This is like a combination of a fixed-odds bet and a spread bet and allows punters to make bets on various financial markets, such as the closing level of the FTSE 100.

CVC bought IG Index in March 2003, when it backed chief executive Nat le Roux in a management buyout. In the first year since the deal, profits have climbed by nearly 50%.

Accounts for the year to May 2004 show that IG Index had earnings before interest, tax, depreciation and amortisation of about £23m, compared with just over £15m the previous year. IG group companies have more than 15,000 active clients worldwide.

The sale to CVC provided an exit for Wheeler, who founded the firm from his living room in 1974. He floated the business in 2000. Wheeler made £34m from the sale of his 24% holding. Prior to CVC he had raised a further £22m from various other share sales. Wheeler, famous for his £5m donation to the Tories, spent part of the proceeds on repairing Chilham Castle in Kent, which he bought in 2002.

Binaries gaining popularity

What chance is there that the FTSE 100 will close higher on Monday? If you reckon you know the answer and would be prepared to back it, binary betting may be for you.

By focusing on a specific event the chance of the FTSE rising, oil breaching $50 a barrel or the pound reaching $2 you can play the markets much as you might have a flutter on the horses. "It is the middle ground between spread betting and fixed odds betting," says Christopher Sparke of betting exchange Binexx.

Conventional spread betting targets a direction, and its return is geared to how far in that direction a particular security moves. Binary bets, on the other hand, have predetermined profits and losses at the outset with the chance of one or the other determined by the odds you are offered.

While this puts a ceiling on how much you can win, it also removes the worry of losing more than you can afford. "There is no unlimited liability, so that's a real advantage over conventional spread betting," explains John Austin, head of proprietary trading at Binarybet.com, the biggest company in this fledgling industry.

You can bet on a wide variety of financial outcomes. FTSE indices are available for day, week and year-long durations. You can also bet on major currency movements, the direction of US interest rates and movements of the main US and German share indices.

Binary betting appears particularly to appeal to volatility thrill seekers who are looking for rapid short-term gains. Austin explains: "80 to 90 per cent of the trade is in the last 10 to 20 minutes of a contract, and it's frantic in the last five." The odds are quoted in the form of a percentage chance of a particular event occurring. The higher that percentage, the more likely a certain event is, and the less you will win if it does occur.

Odds are much easier to work out than the often complicated odds quoted at race courses because the stake is quoted per percentage point, and all wins are 100 points and all losses zero.

So if you take odds at 30 per cent and win at 100 per cent, a £1 bet is worth £70, a pound for each point you win. If you take odds at 3 per cent, which on the race course would be a real 33-1 outsider, a £1 per point bet would win you £97.

A simple type of bet is that, say, the FTSE 100 will close up on the day. If you bet when the market is already a little lower, you may be quoted odds of, say, 25 per cent. That means a 25 per cent chance the event will occur and a 75 per cent chance that it won't, and it equates to 3:1 odds. If you bet £5 per point, you calculate your potential winnings as (100 minus 25) x £5 = £375. Losses would be (0 minus 25) x £5 = £125.

You can just as easily use a binary sell bet the chance that a certain event won't happen. These are simply the inverse odds, adjusted for the spread, from which the broker makes his money. In the example above, you might be quoted, say, a 72 per cent chance that the index won't close higher on the day.

Unlike normal betting, where you must hold your bet, binary betting allows you to sell out before expiry. Going back to our horse racing analogy, that could allow you to turn a profit in the Grand National when the rank outsider you backed before the start is temporarily leading, even though there are still fences left to go. The implication is that you can work your position, buying and selling bets, and even laying off risk. So binary betting does not just allow you to indulge a passion for pure speculation, you can also follow other financial markets' risk tools such as hedging or cutting your losses. While to punters most of the providers look similar, they operate in different ways. Industry leader Binarybet.com, which is part of IG Index and boasts several thousand clients, acts as a bookmaker. Therefore it sets odds and takes the other side of every client's bet.

Binexx.com typifies the other approach. This company, an offshoot of City Index, acts as an exchange. Clients see an order book of intended buys and sells on various contracts, and deal with each other. The spread narrows as open interest increases, while the company takes its fees through a small fixed commission on each contract matched.

Binary betting is growing rapidly, and now accounts for 25 per cent of all the financial bets at IG Index. With some investors having burnt their fingers with the unlimited liabilities of conventional spread betting, some of the big industry spread-betting companies such as Cantor and Finspreads are expected to enter the market soon.

www.binexx.com

www.intrade.com

www.twowaybet.com

www.binarybet.com

Former CSFB Officer Gets Five-Year Sentence for Insider Trading

A former compliance officer at Credit Suisse First Boston was sentenced today at a London court to five years in prison for insider trading.

Asif Butt was convicted in December for conspiracy to insider deal for passing confidential information about the securities firm's clients to four non-CSFB employees, who placed so-called spread bets on the tips.

The men, who were also convicted of conspiracy to insider deal, netted profits of more than 260,000 pounds ($490,000) from betting on 19 different companies between July 1998 and January 2002, while Butt was working at CSFB's Canary Wharf office, according to City of London Police.

Butt, Alex Coleman, Richard Judson, Ian Beale and Daniel Masters were each sentenced today at a hearing at Southwark Crown Court in central London. Beale and Judson were sentenced to two years. Masters was sentenced to 12 months and Coleman to nine months.

It's the first successful prosecution for insider trading in Britain where the leaked information has been used to place spread bets, City of London Police said. Spread betting allows traders to bet on the price of a security rising or falling without owning the underlying security.

CSFB, a unit of Credit Suisse Group, Switzerland's second- biggest bank, fired Butt in January 2002 after discovering the activity.

"We are pleased with the outcome of the case,'' CSFB spokeswoman Rebecca O'Neill said in an e-mailed statement. ``By his own admission, Mr. Butt acted dishonestly and in flagrant breach of trust throughout his employment at CSFB.''

All five men, who police said used nicknames like Walrus and Flopsy between them, denied they had acted illegally.

Bets were placed on companies including The Royal Bank of Scotland Group Plc, the U.K.'s second-largest bank by assets, and EMI Group Plc, the world's third-largest record company.

£9m theft 'mad' accountant jailed

A gambling-mad accountant, who stole more than £9million from his bosses to fund a life of luxury and feed his rampant addiction, has been jailed for five years.

In a "sophisticated" series of thefts, Wing Kit Chu, 32, spent more than four years "simply slipping" the money out from under the noses of chiefs at international engineering giant Charter Plc.

Against the background of an £800million-a-year turnover, they never once spotted him electronically pocketing up to £150,000 at a time.

He pulled off the massive deception by using the passwords of a couple of a colleagues to log on to in-house computers and authorise scores of massive payments to a couple of spread betting accounts.

Hong Kong-born Chu, described by workmates as "quiet, unassuming and polite", became so hooked he used the Internet up to 30 times a day while sitting at his desk at work to wager and lose ever larger sums on the future and performance of the FTSE and Nasdaq stock indexes.

During one particularly frenetic three-day period his "very high risk" addiction saw him blow a staggering £500,000.

Things became so bad he would even bet on who would score the first goal in a football match.

His lengthy betrayal of trust only came to light after he handed in his notice and was asked to help a replacement reconcile some figures.

After repeatedly failing to explain the inconsistencies, he sent a late-night email to one of his superiors confessing his guilt, London's Southwark Crown Court was told. By the time auditors had finished doing their sums, they found he had stolen a grand total of £9,237,312.68 - more than twice that taken from Goldman Sachs bankers by City secretary Jyoti De-Laurey.

Chu, who lived into a £600,000 house in Farnham Common, Berkshire, bought with help of some of the pilfered cash, pleaded guilty to 28 counts of theft between January 1 2000, and August 18, 2004. He also asked for 74 similar offences to be taken into consideration.

IG Index taking a dim view of the Tories' winning.

IG Index, the spread-betting firm founded by card-playing acquaintance of Lord Lucan Stuart Wheeler, is taking a dim view of the Tories' chances of winning the next election, despite its close links with the party. Wheeler pledged £5m of his fortune to the Tories, the result of floating IG on the stock market, to help revive the party's fortunes under Iain Duncan Smith. When Michael Howard replaced IDS, IG Index was predicting the Tories would win around 223-230 seats compared with Labour's 312-322 at the next election. Now the firm reckons the Tories will bag only around 190-197 seats compared with Labour's 350-357.

Punters start the new year short of the DOW and long of the EURO

Spread betting traders enjoyed a healthy December, many of them managing to ride the gentle upswings in the FTSE, the US Dow Jones and the Japanese Nikkei.

However bookmakers said today that punters have moved to a more bearish position on stock indices, believing that the Christmas rally is now over and, as in 1999-2000, the New Year may bring a hangover.

IG Index said that its clients sold the Dow in size on Monday when it got to the 10,860 level, close to 50% above its 2002 low. They are also net short the FTSE, IG said.

Finspreads said punters are very short of the Dow, although they remain long European indices such as the German Dax.

On currencies, punters managed to benefit from the pound's weakness in the last days of 2004, but the main action is now on the dollar.

IG said clients were short of the US currency now, with some talking of 2.05 on the sterling-dollar "cable" rate. Finspreads said its clients were long of the euro at the moment against both the dollar and the pound.

Gold's sharp fall early this week to $426-a-troy-ounce has knocked out many long positions in the precious metal.

The move has encouraged some punters to move to a short position on gold.

City watchdog fines 'spread betting' firm

The London market watchdog has fined a leading financial bookmaker £70,000 (€99,000) for running a "misleading" campaign promoting spread betting, it emerged today.

The Financial Services Authority (FSA) said Cantor Index's flyers, posters and press advertisements did not contain adequate warnings and could have put a large number of customers at risk.

It also said the offer of a free combined computer and mobile phone device may have encouraged less experienced investors to sign up.

Financial spread betting involves gambling on the performance of markets. The bookmaker predicts a range of likely figures - or a spread - and customers bet on whether the actual outcome will be lower or higher.

The FSA said a key risk was that clients could lose far more than their initial deposit, but said warnings included in the Cantor Mobile promotion were not prominent enough.

The scheme - which included a free handheld Xda device - was promoted in a way that attracted the attention of "relatively less experienced investors" .

Cantor was contacted by the FSA soon after the campaign launch and amended adverts within a couple of days.

The watchdog said no customers lost out as a result of the incident.

Anna Bradley, director of the FSA's retail themes division, said Cantor Index should have paid more attention to the risk posed to investors.

She said: "This should have been done through robust systems and controls."

Cantor Index said in a statement that it understood and accepted the FSA's concerns.

It said: "We are pleased that no new or existing clients have suffered any loss as a result of the misleading promotion and we are also pleased that the FSA accepts both in its statement and in its judgement that Cantor Index did everything to correct the promotion once it was pointed out to them."

It had put in place "rigorous procedures" to prevent a repeat of the incident.

Five face jail over insider trading scam

A former vice-president at Credit Suisse First Boston, who worked in the investment banking giant's confidential "control room" in London, and four other men were yesterday convicted on insider trading charges at Southwark crown court.

The case is believed to be the first successful prosecution for insider trading, where price-sensitive information was passed to a group of associates who used it to place "spread bets" rather than take positions in shares themselves.

Prosecutors told jurors that Asif Butt, a former vice-president, was the "man on the inside" who passed price-sensitive information about the bank's clients to an insider-dealing ring.

Opening the trial, James Curtis QC said that Mr Butt had worked in "a particular position of trust and responsibility" as an officer in CSFB's legal and compliance department. He was "in the hub of the secure zone" and had regular access to the "watch list", which detailed confidential situations involving companies that CSFB was advising.

The prosecution claimed that the information-passing started shortly after Mr Butt started work in the control room. They alleged that he tipped off four others - Ian Beale, Richard Judson, Daniel Masters and Alexander Coleman - all of whom were unconnected with the bank.

The men, who prosecutors claimed used nicknames like Walrus, Jackal, Jaffa and Flopsy, then either traded shares directly or placed spread bets with firms including City Index, IG Index and Cantor Fitzgerald.

The lion's share of the winnings from these transactions was subsequently passed back to Mr Butt, with Mr Beale keeping a tally on his computer.

"The spoils were carefully divided between them," Mr Curtis told jurors when the case opened, with Mr Butt's share "averaging" 50-80 per cent of the profits.

The scam, the lawyer explained, came to light when the spread betting firms alerted the Financial Services Authority which, in turn, called in the City of London police.

The five men were formally charged with one count of conspiracy to commit insider dealing between August 1998 and mid-January 2002 when they were arrested. There were also four identical charges, alleging an insider-dealing conspiracy between Mr Butt and the four men separately.

The five men could face jail when sentencing takes place next month. "Every defendant should be well aware that custody is probably uppermost in the court's mind in relation to these extremely serious matters," Judge Christopher Elwen warned them yesterday.

Sentencing is scheduled for January 28, when pre-sentence reports will have been prepared. The men remain on conditional bail until then. All five denied the charges against them.

Jurors deliberated for four days, before reaching yesterday's decision. Throughout the trial, CSFB said it would be inappropriate to comment during legal proceedings but stressed the bank had co-operated fully with police.

Spread bettor Stole £9m from Bosses to Feed Addiction

A 32-year-old worker at a large international engineering company stole more than £9 million from his firm to feed a gambling addiction, it emerged today.

Wing Kit Chu, of Dell Close, Farnham Common, Buckinghamshire, carried out a "well planned series of thefts" over a four year period from Charter Plc, police said.

He then used the money for spread betting on the financial markets, such as the Nasdaq and the FTSE.

Chu pleaded guilty to the theft of £9,080,939 when he appeared before a judge at Southwark Crown Court today. Sentencing was adjourned until January 14, pending reports.

Detective Sergeant Richard Ward, from Scotland Yard's Economic and Specialist Crime Unit, described the series of thefts, which took place between January 1, 2000, and August 18, 2004, as "very clever".

Chu, who worked in Charter's finance division at its central London offices, would use other employees' computer passwords to log on as them and authorise the payments, he said.

He then transferred the company's money to an account he held with a spread betting firm, before using the cash to bet on whether the financial markets would go up or down.

It was a "very high risk strategy", and over the four-year period he lost most of the money - only withdrawing a total of around £800,000 from his account, DS Ward said.

"This was a very well planned series of thefts and an incredible breach of trust both of fellow employees and the shareholders of Charter Plc," he added.

Chu was arrested by police and charged in September after Charter made an allegation of fraud to Scotland Yard.

The company had earlier issued a statement in which it said it was investigating "a series of unauthorised payments totalling in the region of £10 million".

In September, Charter issued a second statement in which it said investigators had identified £9.2 million worth of unauthorised payments made over a period of several years.

The company said it was "actively pursuing" recovery of the money and had also lodged a claim against its insurance policy, under which cover was limited to £5 million.

Ds Ward said: "I would imagine they will only get a fraction of it (the money) back because obviously he (Chu) lost so much of it while he was gambling." .

A spokeswoman for Charter Plc today said the company had no further comment to make.

Traders suffer in precious metals but stick to long side on FTSE, Oil and Euro

Sharp reverses in the last week have not deterred spread betting punters from opening new long positions in the FTSE100 index, crude oil and the euro's exchange rate against the dollar.

Bookmakers said traders were having a fresh go this morning at anticipating a Christmas rally in London and New York, by making up-bets on the FTSE100 index and the Dow Jones Industrial Average.

Capital Spreads said punters were very long of the FTSE, as a result of positions accumulated over a number of days. They were also long of individual equities, including the likes of Rolls Royce and JJB Sports.

IG Index said its clients were encouraged in their bullishness by today's news about a takeover approach from Germany for the London Stock Exchange.

On the dollar, IG reported that punters were going short once again following its recent rebound against the euro, the pound and the yen. Cantor Index said traders remained short of the dollar, but not to the extent they were earlier in the month.

One area that traders have been finding particularly tricky has been precious metals. Cantor said most people were bullish on gold now, but some had been caught out by the sharp fall in gold and silver prices last week.

Gold fell from 453 to 435, silver from 8.02 to 6.65 and platinum from 8.75 to 8.25.

Oil was another big casualty last week, twice reaching lows around $40 on the January Nymex contract.

Both IG and Cantor said that punters had been moving long of Nymex near to $40, in the hope of a recovery back towards the November high of $55.

IFX Contracts for Difference bought

Vincent Tchenguiz, the brother of Robert and co-owner of Rotch, the property group, has bought contracts for difference representing 3.3 per cent of IFX, the foreign exchange and spread-betting company, write Philip Stafford and Kate Burgess.

Mr Tchenguiz, who runs Consensus, a wholly-owned Rotch subsidiary, tried unsuccessfully last week to buy between 10 and 20 per cent of IFX shares in the market as a strategic stake after IFX announced a strong profit rise. The property tycoon bought the CFDs through Cantor Fitzgerald, the execution-only broker. CFDs are contracts giving investors an economic interest in shares without owning them. They reflect the difference between the price of a share at the start of a contract and at the end of it. Investors do not pay stamp duty and cannot vote.

CSFB betting ring denies abuses

A BETTING ring accused of insider trading had no idea that information leaked to it by former Credit Suisse First Boston compliance officer Asif Butt was confidential, a court has heard.

Butt, giving evidence this week in a trial in which he and four others are accused of market abuse, has admitted passing on supposedly confidential information to the co-accused but is arguing that he was not breaching criminal law. Butt, Ian Beale, Richard Rudson, Daniel Masters and Alexander Coleman deny the insider trading charges.

They are alleged to have made hundreds of thousands of pounds using spread bets to gamble on share-price movements based on information given to them by Butt. He has admitted that the first of 19 alleged offences of insider trading took place three weeks after he was recruited by CSFB.

Southwark Crown Court heard Butt admit he had access to supposedly confidential material contained on the CSFB 'watch list' of looming mergers and acquisitions and profit warnings, and that he passed it on. However he denied that his co-accused knew of the sensitivity of the material, or that what he did was illegal.

Butt told the court he had completed his exams as a solicitor and his interpretation of the Criminal Justice Act was that spread betting based on insider information was not illegal, because it did not take place on a stock exchange.

The spread betting took place between July 1998 and 17 January 2002 - a period when, Butt claims, spread betting was outside the remit of regulations on insider trading. A legal ruling in March this year decided that spread betting came under insider dealing legislation.

He said the spread bets he made constituted a breach of trust with his employer but were 'a risk I took with my employer'.

Butt also said he was addicted to betting. He was a regular at the Golden Nugget casino in Soho. One night after a drinking session with friends he was barred from entry to the casino because he was wearing trainers.

However, he found a tramp, changed shoes with him, and gained entry to the club where he then won £10,000 on blackjack.

He had formerly worked in a compliance capacity at Dresdner Kleinwort Wasserstein and Deloitte. After joining CSFB, he rose to vicepresident on a salary of £90,000. The case continues.

Betting on Tchenguiz

IFX Group , the foreign exchange and spread betting firm, was the focus of traders' attention yesterday and it had little to do with the company's half-year results. Not that there was anything wrong with the figures - they met expectations and the company talked of a strong start to the second half of the year.

No, the reason for the interest was talk that stockbroker Durlacher, down 10p to 62.5p, had received an order to buy 14.9% of the company from property tycoon Vincent Tchenguiz.

The word in the Square Mile last night was that Mr Tchenguiz had failed to get hold of the stock after institutional shareholder rebuffed his approach. However, traders reckon the order has not been pulled and the entrepreneur is mulling whether to come back and offer 120p for stock.

IFX's biggest shareholders are Schroder Asset Management, Deutsche Bank, Invesco and Tradition, a Swiss broking group that raided the market for 10% of IFX earlier this year. Tradition's purchase in February was seen by market professionals as shrewd move given the widespread belief that the foreign exchange industry will soon experience a wave of consolidation.

Mr Tchenguiz is no stranger to the industry. He started his career as a foreign exchange dealer and is still an active player in the market. From his townhouse in Mayfair he runs an operation that he claims takes positions as big as $2bn - $3bn (£1.05bn - £1.57bn) some weeks.

According to analysts the main attraction of IFX to a bidder is its strong balance sheet, particularly the fact that it has £15.8m, or 55p-a-share, of free cash. IFX shares closed 6p higher at 98p, valuing the company at £28m.

Spread-betting demand gives lift to IFX

Edmond Warner, chief executive of IFX, the financial spread-betting and foreign exchange company, said rising numbers of private investors taking financial bets had lifted the lossmaking group into operating profitably, after a loss in last year's second half.

The group incurred an interim pre-tax loss of £362,000 to the end of September, against a £1.22m loss last time. But excluding goodwill amortisation, operating profits were

He said the recent return of market volatility and a surge of interest in spread-betting made the outlook "rosier". Mr Warner added: "In the past six to seven weeks we've more than doubled the profits [before goodwill] we made during the past six months."

He said this was the result of a recovery in market volatility and customer activity," he said.

Total revenues declined 14 per cent to £8m, on the back of a sharp fall in foreign exchange and commodities trading. However, turnover from financial spread-betting and providing contracts for difference to private investors increased 44 per cent from £4m to £5.8m.

Finspreads, the spread-betting division that was restructured a year ago, represented two-thirds of IFX sales and the majority of profits. It attracted on average 400 new spread-betting customers a month in the first six months of the year. In the past two months this had increased to about 600 a month.

The group said it would focus increasingly on retail investors worldwide. IFX is buying Commerce Foreign Exchange in Boston, which provides forex services to US retail investors, for $1.9m (£1m). The purchase gives IFX global spread and is expected to be earnings enhancing.

Losses per share are given as 1.4p (4.19p). The interim dividend was unchanged at 0.25p. The company's shares rose 6p to 98p.

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