The History of Spread Betting

The History of Spread Betting

Spread betting is extremely popular in the UK and is growing by 20-30% each year in the UK according to leading spread betting company Tradefair.

In fact, there are now over 20 spread betting companies operating in the UK alone, with the average spread bettor in the £50k+ earning demograph and over 30 years old.

However spread betting as a form of gambling and investment is still relatively in its infancy.

1974: The Beginning of Spread Betting

Spread betting first started in the City of London in 1974, when a banker called Stuart Wheeler introduced a form of financial trading that allowed bankers to speculate on the price of gold. Most of the trading at the time was set on gold futures. Wheeler’s company became known as the Gold Investors Index, which is nowadays IG (International Gold) Index – one of the biggest and most well known spread betting platforms in the world.

To set the price of gold, every week in those days Stuart Wheeler and a select group of contacts would meet in New Court at the offices of N.M. Rothschild.  After these prices were announced to the market, Wheeler would than set a “buy” price and a “sell” price depending on what he thought would be the next “fix” in the market at the next meeting.  Speculators could than hedge on whether they though the gold price would be higher or lower than this.

The IG Index held a monopoly in the spread betting market for a few years until City Index was introduced, offering similar services.

During the 1980s, the potential for spread betting grew as the markets increased in value and diversity.  In the 1980s the commodities and securities markets began opening up to spread betting, however a lack of growth in spread betting was the cause of a lack of technological innovation.

The Emergence of Online Spread Betting

It wasn’t until the late 1990s and 21st century when spread betting became far more popular.  The internet and technology boom in 200 led to much more spotlight on the market.  Furthermore, investors began to realise that they could make money speculating on downturns in the economy.  The media in general began covering more news about global markets like currencies and commodities: gold and oil prices for example.

From 1999 – 2007, dozens of new spread betting platforms and companies entered the market.  Spreadex and FinSpreads launched in 1999, CMC Markets in 2001, ETC Capital in 2002, and Capital Spreads in 2003.  The owners of the world’s largest sports betting exchange Betfair also launched a financial trading platform TradeFair in 2008 to offer spread betting services and speculation on the markets.

Improvements in technology allowed spread bettors to fund accounts online, check the market prices on the go, and make transactions from their computers.  The introduction of mobile spread betting, especially on Smart Phone such as the iPhone has also led to further growth.  In the sports betting industry last year, mobile betting increased by 40% in revenue turnover in the UK.  Spread betting analysts likewise account for around 30% of spread betting turnover in 2010 to mobile apps and mobile spread betting.

The main reasons for the high levels of growth in the spread betting industry in the UK are because it is tax-free and there are so many markets to bet on.  The majority of growth and new accounts comes from city traders with experience and knowledge of the markets.  They realise that they can make far more profit in spread betting due to the lack of capital gains tax and Stamp Duty, plus the advantages of trading on margin and leverage has also opened up the industry to those with smaller starting capital to invest.

The Future of Spread Betting

While spread betting continues to be a popular form of trading in the UK, the growth of financial spread betting in particular has slowed down over the years, as illustrated by this Google trends chart:

Growth of Spread Betting

As you can see, spread betting growth has slowed down while new forms of trading such as binary options have increased. Furthermore, according to the Telegraph, the UK Treasury is looking at the apparent “loop hole” that has allowed spread bettors to avoid Stamp duty and income tax.

Although this would heavily damage the spread betting industry, it’s very unlikely that the government would start taxing spread betting as an investment since this would mean the government would also have to provide tax rebates for losses, which would lead to net negative tax revenue.

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