Bookie at your service

By MARK FRYER

Mention gambling and shares in the same sentence? Why, it's enough to make an old-school broker reach for the gin.

But a new breed of not-quite brokers has no worries about treating the market like a casino.

As if there weren't enough ways to make or lose money, "financial bookmakers" have come up with a host of new methods.

Convinced that company A's shares are sure to rise? The old-school strategy would be to buy as many as you can afford, then wait. The bookies offer a more direct approach - take a punt on company A, just like picking a winner at the trots. Pick right and you're in the money. Get it wrong and - well, there's always tomorrow.

A mass of these new-age bookies has sprung up - most operating via the internet, most based in Britain - offering the chance to bet on a single share, an entire market, currencies, commodities like gold, or even house prices.

Some are far from smalltime. According to the London Financial Times, just one bookmaker, Deal4Free (www.deal4free.com) transacted 581,000 share-based bets in the last three months of last year. And there are dozens of others, with names such as iDealing, City Index, TradIndex, finspreads and onewaybet.

Even the most jaded investor ought to be able to find a permutation to pique their fancy, given that some websites offer thousands of potential bets.

Understandably, New Zealand investments don't figure highly, although the aforementioned Deal4Free does offer betting on Telecom shares, as well as the entire New Zealand sharemarket, as measured by the NZSE10 index.

this isn't something you'll find at the TAB, which sticks to sports and racing.

Many of the overseas bookmakers specialise in financial punting, but others offer it alongside more traditional sports betting.

Cynics might say that sharemarket investing has always been a form of betting, but the big difference with using a bookie is that you never own the shares in question.

Here's how a simple "spread bet" works.

Say the bookie is quoting your old favourite, company A, at $3. You're convinced company A is about to surge, so you buy at, say "$20 a point".

That means that for every point - 1c - company A's share price rises, you make $20. It's the equivalent of owning 2000 shares (because if you owned 2000 shares, every 1c rise in the share price would be a gain of $20), although the deposit you have to put down may be much less than the cost of $2000 shares.

If Company A rises to $3.50, you've made $1000 (50 points times $20). As long as company A goes on rising, you go on winning, and those winnings can be many times your initial deposit.

Now for the "but": get it wrong and your losses can also be many times your initial investment. If no-one shares your enthusiasm for company A, you'll lose $20 for every 1c the price drops.

And as it drops, your friendly bookie will be looking for more cash from your account, to make sure there's enough to cover those mounting losses.

One bookmaker boasts that, for an initial deposit of $5000 you can trade $1 million worth of shares - wonderful as long as the price moves in the direction you predict, potentially terrifying if you get it wrong.

Sharemarket betting doesn't rely on your ability to pick winners; if you'd rather, you can pick losers instead.

So, you can bet that a share, or a market, or whatever, is about to fall. If it does, you can win rewards out of all proportion to your initial deposit.

This may be why sharemarket betting has apparently become so popular lately; it's an easy way for even small investors to "go short" and profit when prices fall, as they have done with distressing regularity in the past few years.

Things get much, much more convoluted than the example above. Some of the bets are so complex that you deserve a prize for understanding how they work, never mind picking a winner.

But if it all gets too much, you can always sit in the sun. At least one financial bookmaker is also happy to take bets on the (British) weather.

* To contact Personal Finance Editor Mark Fryer write to: Weekend Herald, PO Box 32, Auckland Ph: (09) 373-6400 ext 8833. Fax: (09) 373-6423.
* Email Mark Fryer