Political spread betting market backs Conservatives

Spread betters are forecasting that the Conservatives will win more seats than Labour in this week's UK general election, with the uncertainty over the outcome triggering an unprecedented wave of interest in political trading.

"We've never seen business like this on the political market," said Matt Brief, head of dealing at IG Group.

Spread betters usually trade currencies but companies also make markets for sport and politics. Customers can buy or sell different market outcomes, with companies making most of their money on the difference, or "spread", between the two prices.

Over recent months, a number of companies, including IG Group, Spreadex and Sporting Index, have created markets for the number of seats each party could win in the general election. In such markets, customers can, for example, "buy" Labour at 270 seats, winning a fixed sum for each seat the market rises, and losing the same amount if the market moves downwards.

IG Group clients are predicting there will be 291 Conservatives seats, with 266 for Labour. They suggest the likelihood of no overall majority is 94 per cent. Spreadex currently indicates around 289 seats for the Conservatives, with 267 for Labour.

"This is by far the largest number of [political] bets, far more than previous elections," said Andy MacKenzie at Spreadex. "I think it's because [the UK election] is quite close and difficult to call, so there's a little bit more value for traders," he said, adding that the political bets represent hundreds of thousands of pounds' worth of potential liabilities.

Sporting Index, which specialises in sports spread betting, says it has seen seven times more demand than it did for the election in 2010. "We had the Scottish referendum last year, which really got people going," said Ed Fulton, political spokesman at the company.

Spread betting customers often have a financial background. The vast majority of Spreadex clients are male, predominantly live in the south east of England, and are mostly aged in their 40s and 50s.

While each of the three companies shows a lead for the Conservatives over Labour in the market for seats, they also offer bets on the leaders. IG customers think there is a 50 per cent chance of Labour's Ed Miliband becoming prime minister.

A wide range of electoral markets have created opportunities for certain clients to "hedge" against undesirable outcomes. One IG client is betting on Mr Miliband as prime minister to hedge against the perceived real-world implications of a Labour minority government, according to Mr Brief.

"This particular client was long sterling, had sterling assets, and was worried that sterling would depreciate," he said. "He wanted to cover himself by backing the messiest possible outcome, which he thought was Miliband leading a minority government."

He added that the client in question stands to gain around £200,000 if correct.

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