The basis of financial spread betting markets are prediction markets, which are really nothing more than speculative markets created solely for the purpose of making predictions, with your  assets tied to a particular event, or some form of action. Market prices as they exist currently can be interpreted as predictions related to the probability an event has of occurring, or the expected body of a set of parameters. As they relate to financial spread betting, prediction markets tie directly into betting exchanges, which are some of the more commonly used betting sites available in the industry today. And, despite the fact that prediction markets originally began as nothing more than virtual markets, these days they exist as actual exchanges, with Betfair showing around $28 billion traded in 2007. Prediction markets in the United States operate using fake money and are free to play, simply offering prizes to the traders as incentives to participate. Other companies, such as Betfair, operate outside of the U.S. and are thus actual markets.

One of the original prediction markets that gave rise to financial spread betting was the Hollywood Stock Exchange, which was nothing more than a virtual market game buying and selling prediction shares based on movies, actors, and other film-related options. Over the years they have evolved into actual markets in the financial spread betting industry, with literally hundreds of billions of dollars, pounds, Euros and other currencies changing hands on an annual basis around the world. Betting exchanges are the most common places to find prediction markets in the 21st century.

Apr 11 2010