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The history of Spread Betting

When and why it was developed

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The history and development of financial spread betting can be divided into three parts, each spanning a previous decade.
The 1970s - The seeds of Spread Betting are sown
The UK gaming laws are the cornerstone of spread betting because all gambling wins are tax-free. Therefore the financial markets were seen as a natural arena for bookmakers and entrepreneurs to expand into.
  • Stuart Wheeler (Wikipedia link), the founder of IG Index, went into business offering a spread bet price on widely followed markets, such as the FT All share Index (there was no FTSE 100 index at that time), Gold and the US Dollar
  • Also around this time the well known bookmaker, Joe Coral, introduced spread bet prices on Gold and the US Dow Jones index, which 25 years ago was hard for speculators to get exposure to
However, the main problem facing the new spread bet firms was the client base as it was small and made up of almost entirely of professionals already working within the financial markets.
The 1980s - The foundations of Spread betting are set
Stockmarkets had been in the dumps for many years but then came the beginning of the great stock market bull move in 1982/83.
  • This was followed by Big Bang (deregulation of the London Stock Exchange) in 1986 as well as the Tories privatisation policies
  • The stockmarket therefore started to open up to the masses and with ever higher equity prices speculation grew everyday, and there's no better tool for speculating than spread bets
  • However, the spread betting industry had the problem of a decade before - it still struggled to attract clients from outside the financial industry
So what was needed was some sort of catalyst enabling the brokers to expand their home grown customer base outside the City of London.
The 1990s - A Public Bull Market - Spread Betting enters the mainstream
In the 1990s the spread betting industry got not one but two major catalysts that enabled the brokers to dramatically expand their client base -
  • Catalyst 1 - The internet - Introduced and enabled online trading software to the masses
  • Catalyst 2 - The tech boom - A once in a lifetime boom in equity prices that got everybody talking
Plus an increase in personal computing power coupled with lower prices for these machines meant the spread betting firms were able to build sophisticated trading platforms. And these offered markets on virtually every major tradable product from stocks, bonds, FX, commodities and even house prices.
The great Stockmarket bull market - The FTSE 100 : 1993 - 1999

2000 - present - New products and new bets
From 2000 onwards the spread bet brokers' focus seems to have been threefold -
  1. Educate their non-professional clientele with plenty of training and free courses
  2. Continue to innovate with new products such as Binary Bets, and
  3. Offer a one-stop trading platform enabling clients to trade most global markets from a single account
One of the main advantages the industry has is their speed in developing new products and markets. For example, their products are OTC (over-the-counter) so they don't have to go through the same regularity process that major Exchanges or traditional brokers do when introducing new bets and markets.
The future of the spread betting brokers looks good and like most financial companies they'll probably do better in bull markets.

But with the flexibility they offer, especially the ability to short sell (profit from declining prices), punishing and challenging markets such as 2006-2008 can still be great for both the broker and client alike.

WARNING! - Spread Bet Broker Advice

There are good spread bet brokers and there are bad ones.

Having a good broker won't guarantee you profits but a bad broker will probably lead to losses as a combination of their gamesmanship and suspect software takes its financial toll.

So who do I recommend?

Simple, the 2 brokers I personally use for my own spread betting (and I've used them for years) -

FREE Report : How to Learn Spread Betting and Prosper
How to build the all-important trading experience
Where to get trading help and advice
Which broker to use and why
Simple 2 month training plan to follow
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