Spinning out of control in a grand prix with no barriers

Spread betting is dangerous. It's official. The perils of this form of investment were starkly illustrated on Sunday by a City Index client who, during the Monaco Grand Prix, went to hell and did not come back. Having expected to win pounds 125, he lost nearly pounds 15,000 - and not for the first time.

Spread betting, which has become very popular with its possibilities for both big wins and big losses, is nothing like gambling with an ordinary bookmaker. When a pounds 10 bet is placed with a bookmaker and it loses, the punter loses pounds 10. Stake pounds 10 per unit on a spread and losses are multiplied by the margin by which the punter is wrong.

In spread betting, the bookmaker offers a "spread" and the punter can choose to gamble below or above this margin. In cricket, for example, a bookmaker might offer a spread on a batsman's innings of between 40 and 45 runs. If the punter "buys" at 45 runs at, say, pounds 1 per run, and the batsman actually scores 75 runs, the punter wins pounds 30 (75 - 45 x pounds 1). If he had chosen to "sell" at 40 runs at pounds 1 per run, he would have lost pounds 35 (75 - 40 x pounds 1).

City Index devised a bet where the Monaco Grand Prix winner received 50 points, the second 25 and the third 10. They then quoted a spread on each of the leading drivers plus a spread of 0.5 - 1.5 points about the field (the rank outsiders).

The punter, believing he was on to easy money, "sold" the field at 0.5 points at pounds 250 a point. In other words, he gambled that none of the outsiders would finish in the first three. He stood to win pounds 125 if things went according to plan. They did not.

The retirements of Schumacher, Hill and Alesi left Olivier Panis (a 300-1 shot) clear to rack up 50 points with a bloodless victory. Another outsider, Johnny Herbert, scored 10 points in third place. The punter, meanwhile, haemorrhaged pounds 14,875 (50 + 10 - 0.5 x pounds 250).

Such a tale ought to be the hard luck story of all time. But the same punter had seen it all before.

In last season's First Division play-off final Reading were 2-0 up against Bolton when, with 30 minutes gone, they won a penalty. The punter chose this moment to phone Patrick Jay at IG Index, who were running a bet where the winner received 25 points and the loser 10.

"At that point we were quoting Reading at 24 - 24.5 and he bought Reading at 24.5 for pounds 1,000 - a bet which would have netted him pounds 1,000 if Reading had won," Jay said. "But Reading missed the penalty, Bolton scored once, equalised in the last minute of normal time and scored a winner in the 29th minute of extra time."

Bolton went up and the punter went down - to the tune of pounds 14,500. Reading scored 10 points, 14.5 fewer than he had forecast at pounds 1,000 a point (14.5 x pounds 1,000 = pounds 14,500).

In the spread betting world of unlimited liability - where spread wagers, unlike bets with bookmakers, are enforceable under the law - such nightmare stories are rife.

Neil Greenwold, of City Index , tells a similar story from the Rugby World Cup: "We ran a spread on the highest points total in the tournament and, after Scotland beat the Ivory Coast 89-0 early on, we set our spread at 92 - 95, thinking 89 would never be bettered.

"A punter agreed, selling with us at 92 for pounds 500 a point, expecting to pocket an easy pounds 1,500 [92 - 89 = 3 x pounds 500]. Then New Zealand and Japan served up 162 points and the punter ending up losing pounds 35,000 [162 - 92 = 70 x pounds 500]."

Wally Pyrah at Sporting Index knows a punter who backed Australia to make a decent score against England in a Test. The punter went to sleep happy enough with Australia at 72-2, but woke up four hours later to find Australia all out for 130 and himself back in the pavilion owing pounds 12,500.

Spread betting on cricket is particularly dangerous but, as Pyrah points out, the peril cuts both ways. Sporting Index underestimated the number of runs Brian Lara would make in a West Indies-England series and, as Lara surged to a record Test score of 375, Pyrah calculated that each Lara boundary was costing his firm pounds 1,200.