What a card! What a spread! What a bet!

The City is all a-flutter. A stockbroker known as "the Spaniard", an ex-pipefitter called "the Plumber", and a fantastically audacious £6m bet have sent the pin-stripe establishment into a tizzy.

There has already been one casualty – the Spaniard, aka Nigel Howe, the now suspended broker at City firm Gilbert Eliott – a huge paper loss for the Plumber, known less colourfully as self-made millionaire Paul Davidson, and a great deal of egg on the face of the regulatory authorities.

The furore centres on a complex spread-bet on the stock-market flotation of Cyprotex, a hitherto obscure drugs-testing company to which Mr Howe acted as broker and Mr Davidson was the major shareholder.

The Plumber bet heavily on the shares rising with the spread-betting firm City Index, which then hedged its bets by buying £5m of the shares itself, helping push the shares up after flotation.

Livid investors called in the City watchdogs at the Financial Services Authority to investigate whether this distorted the market. But while the deal was clearly unorthodox, nobody seems to have broken the rules, as they currently stand.

Mr Howe, a notorious spread-better who placed the bet on behalf of Mr Davidson, has been suspended pending inquiries, but made a triumphant return to his favourite drinking haunt, the City Tup, on Friday to a frenzied media scrum.

Unrepentant, exultant even, he described the bet as both "exhilarating" and "immensely clever" in exploiting a regulatory loophole.

Meanwhile, Mr Davidson, who by Tuesday was sitting on a £2m loss (which he recouped on Wednesday), declares that he now wants out of spread-betting to spend more time with his Ferraris.

The affair has thrust the glamorous, roller-coaster world of spread-betting and its macho cast of high-stakes, adrenalin-charged gamblers into the media limelight.

Some 100,000 arguably deluded souls now regularly throw their money at a pursuit where the winnings are potentially unlimited – as are the losses. Most of them, typically well-heeled men working in the City for whom gambling is second, if not first, nature, can afford the risk. There are, however, less fortunate, lower-level addicts, who, caught up in the excitement, have lost everything.

Apart from City-related punts on shares, currencies and commodities, punters can pick on any conceivable aspect of a sporting performance. One regular, for instance, bets on the timing of the first goal in every televised football match, and as soon as it is scored switches off. Others take punts on the length of David Beckham's hair, or the number of cricket catches taken by fielders in sunglasses or pitch appearances by team trainers.

It's not just finance or sport, however. Spread bets have been made on the number of days that Stephen Byers remains in office (plenty of money lost there as he clings on), and the sips that Gordon Brown takes, or times he mentions "prudence", during his Budget speeches. The only bet anyone can remember being refused recently is the length of time survived by the Queen Mother.

"It's not just a bit anoraky; it's hugely anoraky, so it appeals to the male mind-set," says David Buik of Cantor Index, another spread-betting firm. "But it's also an exhilarating way to make a few bob and add style to your quality of life. Spread-betters like an exciting contest."

It also helps that winnings are tax free, disclosure unnecessary, and gambling easy, as punters can frequently open an account with a spread-betting firm with nothing more than their credit card. Unlike a conventional bet, no money is put up as a wager. Rather, gamblers win or lose money depending on how right or wrong they are in their punts.

Another famous spread-better is a 36-year old dentist, Sarab Singh, whose passion for a punt sees him trading between patient appointments. He even wears a pager to alert him to market movements. In one gamble, he made £90,000 when a biotech firm's shares doubled in value.

Because of its secretive nature – punters' identities are closely guarded – nobody knows how much money now changes hands. But the "Plumber and Spaniard" affair – following as it does a Fraud Squad probe into another spread-betting ploy – may see the freewheeling days of the industry come to an end as scrutiny increases.

The larger-than-life characters who have dominated it for the past few years may soon have to seek new thrills elsewhere. Anyone offer me a spread on how soon?