History of Spread Betting

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History of Financial Spread Betting

Stuart Wheeler - Pioneer of Financial Spread Betting

Financial spread betting in the UK started back in 1974, and the person who can be credited with being behind it all is Stuart Wheeler of IG Index fame, who realised that there was a demand for speculating on the price of gold. The only problem was though that at this time, the trading of gold purely to make money was, believe it or not, illegal.

Wheeler’s ‘eureka’ moment appeared when he came up with the idea of putting together an index which would allow individuals to trade on the price of gold, which was perfectly legal.

At this time of his life, Wheeler was in fact an unemployed stock broker but this idea of trading the gold price as an index was the making of him and the company he formed was to be called the International Gold Index, hence the name IG Index. When you consider that he borrowed £5000 to begin his business it soon becomes apparent that this enterprise is a success story that definitely takes some beating. In those early days, Wheeler and some carefully chosen experts used to meet in the offices of the well know merchant bankers,  N.M. Rothschild to decide on the prices at which the gold bullion would be traded at. A bid and offer price would be decided upon and that was the basis for this exciting new enterprise.

The reason that the name of the company was changed from the International Gold Index to IG Index was not just because an abbreviation was requited, it was in fact because the the Old Lady of Threadneedle Street, ie the Bank Of England, objected to the name International Gold Index, so changing to IG Index seemed to be the most favourable option.

The response to this new way of speculating from individuals who were based in the City was highly encouraging to say the least and this encouraged Wheeler to look into other instruments which his growing list of clients would be able to trade on.

A Small Market To Target

The business continued to go from strength to strength and it couldn’t have come as much of a surprise to Wheeler when other spread betting companies started to get involved in the 1980’s  (While City Index were also founded in 1983, the majority of financial companies launched during the dotcom boom on the 21st century).  The main problem for everyone concerned at that time though was that the client base was restricted to those who worked in the city. The reason for this was because the general public were not really familiar with the likes of options and currencies as well as a few other markets, so were not really willing to bet cold hard cash on which direction they would be moving.

It should also be remembered that at this time there was not the luxury of the internet for accessing various trading information and making the trades themselves and it is often easy to forget how fortunate we are in this day and age to have instant access to the technology that we now often take for granted.

As financial spread betting received more coverage in the likes of the Financial Times and the Investors Chronicle, individuals who had not even considered this form of speculating began to show an interest, but it was often the case that anyone who enquired about opening an account with one of the spread betting firms were not exactly welcomed with open arms.  The broker who took the bets over the telephone were usually not to sympathetic with anyone who was new to the game and struggling to come to terms with the various parlance that these fast talking brokers were used to.

The Internet Changed Everything

Financial spread betting brokers were quick to embrace the opportunities that the internet offered and along with this came an all out campaign to attract new clients. Educational programmes were introduced, charting packages that were once a necessary spread betting expense now came as part of the client package, and the help and support that is available for all clients no matter what experience they possess.  Trading platform support is now both extremely helpful and friendly.

Spread betting became more popular as the advantages of it started to become obvious.  Tax-free profits, a lack of capital gains tax and the improvement in mobile/internet technology have made spread betting on financial markets easier.  Traders can now spread bet across a ton of commity, house price, Forex, indexes and financial markets across the world from a single spread betting platform or account.

The range of financial spread betting markets that are available today, as well as the whole trading experience, is almost unrecognisable to what it was only a few short years ago.  As more online brokers are entering the arena, it must be regarded as great news for financial spread bettors everywhere, due to the fact that these brokers are doing everything that they possible can to attract new clients and make their spreads more competitive.

Growth of Spread Betting: The Present Day

Financial spread bettors have now never had it so good, everything from the fundamental research to the placing of a bet can be completed with the minimum of effort, the standard of the service which is offered can only be described as first class and one can only imagine which developments will be introduced over the next few years, exciting times indeed.

Betfair, who launched their trading services tradefair.com in 2007, estimate that the global audience for spread betting is about £650m per annum retail operator revenue, and is growing at a rate of 20-30% per annum.  With over 20 spread betting companies now operating in the UK alone, providing access to over 2,000 markets, the market has wildly driven the costs and commissions down, making it even more profitable to spread bet in.  While the standard commission and spread just 10 years ago was 10 points, the high competition levels have reduced this down to 2 or even a single pts spread.  For example, if the offer (sell) price is 80p, the bid price (buy) nowadays will be around 81p, where as a couple of years ago it would have been 85p or higher, depending on the company.

Spread betting appeals to the same type of market as CFD’s, i.e. industry traders who work in the financial services sector and are aware of the risks associated with financial trading.

 

 

 

 

 

 

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