It is possible for spread betting fortunes to change very, very quickly, writes Laura Slattery.

Oil has become the latest fixation for financial spread betting customers, attracting more bets than currencies.

Inspired by a surge in oil prices to all-time highs of more than $55 (€42.50) per barrel, oil is currently the third-most popular bet, after Irish-listed shares and indices, according to Mr Brian O'Neill, operations director at financial spread betting firm, Share Spread.

"It's even out-trading currencies, and it's very chunky kind of stuff, you don't get people playing for fivers. We've had one or two players hedge their portfolios using oil as well," Mr O'Neill says.

Until about a month ago, betting on oil did not prove an effective way to hedge, Mr O'Neill adds, but then oil continued to rise as the market fell, meaning people who were losing out on shares were getting some compensation from their bets on oil.

Delta Index, another spread betting firm based in the Republic, also reports growing interest in oil.

"There were people who bought it at $35 or $37 a barrel, betting that it would go up, and some of them have made quite a lot of money," says Mr Dermot O'Donoghue, Delta managing director.

"With only fixed amounts of oil in the ground and world consumption reaching 85 million barrels per day, it is not difficult to understand the price volatility we have seen."

According to Mr O'Donoghue, aside from shares, it is the headline-hitting investments that draw in the most bets. At the start of 2004, it was a weak dollar that was making the biggest news splashes and, therefore, garnering most attention.

In financial spread betting, customers are able to "sell" as well as "buy". Customers will sell or "go short" on a share, index, currency or commodity if they think that it will fall in price or buy it if they think it will increase in value.

The majority of people betting on oil have been buyers, according to Mr O'Neill, however most people have been dollar sellers.

"If you look at the history of the Bush administration, there has been no attempt or no pretence at an attempt to stymie the decline of the dollar. Another administration might say that they don't want a weak dollar but, in the absence of that, it seems like a free bet."

Although financial spread betting is a relatively low cost way to short shares, the culture of shorting just isn't there, Mr O'Neill believes.

Irish shares have an 80 per cent buy rate on Share Spread.

The oil buyers, like buyers of shares in the pharmaceutical company Elan, have an "if it works, stick with it" approach to betting, he says.

Some customers have made gains of 300-400 per cent by betting on Elan.

"It's like being up a thousand quid at the casino table, they don't want to stop betting. That's the attitude.

"There is a gambler psychology at work here. With Elan, they believe what they want to believe."

But in the game of financial spread betting, it is possible for fortunes to change very, very quickly.

A €5 spread bet on a company's share price might sound like pocket money to the amateur gambler.

But such a bet can actually work out as the equivalent of buying 500 shares, requiring the investor to stump up a four-figure deposit.

If the share price drops 50 cents, which it could do for no other reason than because the market is having a bad day, spread betters who have placed a €5 per point bet will lose €250 (assuming they have backed it to rise, not fall).

Most financial spread betting companies have online stop-loss facilities, which allow customers to limit the loss on an individual bet.

A stop-loss function means that if the loss on a particular bet reaches a point at which the customer had specified that they no longer wished to risk any more money, the bet is automatically closed.

If shares rise in value, the investor can move the stop-loss price up above the initial price, thus locking in a profit.

"Let's say you bought AIB shares a few months ago at €12 and you put the stop-loss in at €11.60, because you weren't prepared to lose more than 40 cents a share," Mr O'Donoghue explains.

"When AIB's share price went up to €12.50, you could have moved the stop-loss up to €12.20, so you couldn't actually make a loss. You would be guaranteed to make a profit of 20 cents multiplied by the value of your original bet."

Spread betting customers are a mix of novice investors and the more sophisticated kind, Mr O'Donoghue says.

"People do lose money, but people lose money when they buy shares as well."

For gamblers who lack confidence in their ability to win at financial spread betting, the Delta Index site includes a simulator for those who want to play with fantasy money. "There is one little health warning with using a simulator," Mr O'Donoghue says. "You can be a little more profligate with your trading style and you would want to be careful that you don't continue your bad habits when you start dealing with real money."

Financial spread betting firms in the Republic are currently regulated as gaming companies, so their customers can technically be defined as gamblers, not investors.

However, a new EU directive will oblige the Irish Financial Services Regulatory Authority to regulate the area from 2006.

The market should also expand as a result of the UK-based company IG Index's decision to step up its marketing activities in the Republic.Meanwhile, spread betting firms are finding new ways to encourage people to have a flutter.

Taking positions on the Permanent TSB/ESRI house price index is popular among people with large property portfolios who want to hedge their investments, according to Mr O'Neill.

Growth in the index might be pitched at 10 per cent. Property investors will thus "sell", so that if the market doesn't grow by 10 per cent, they will at least have the small compensation of a spread betting win.

But it is one bet they want to lose. If they have a portfolio worth €400,000 and the property market does grow by 10 per cent or more, they might lose €4,000 on the bet, but gain equity of at least €40,000 on their portfolio.