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Spread Betting

The history of financial spread betting is really the life history of one man – Stuart Wheeler, whose gambling instincts and vision created one of the most dynamic and fast moving trading strategies available today. As both a banker and an excellent poker player, who famously played cards with Lord Lucan a few days before his mysterious disappearance, it was his ability to see the opportunities from both sides, that eventually led to the creation of the spread betting market. Until then, trading in the financial markets for the small retail speculator had been limited to the traditional methods of stocks and share ownership, very limited futures and options, and virtually no currency or derivatives trading. The catalyst for his idea was the price of gold, and when combined with the UK government’s policy of not levying tax on winnings from betting, he saw the opportunity to ‘make a market’ in the future price of gold.

It may come as a surprise to you, but since 1919, a small and elite group of bankers have met in the City of London ( other than in wartime or major emergencies) to agree a rate for the price of gold, commonly known as the London Gold Fixing, or Gold Fix for short. Historically these meetings have taken place twice daily at the offices of NM Rothschild, but since 2004 the prices have been agreed by morning and afternoon telephone calls between the members. Stuart Wheeler saw an opportunity to offer his close friends and colleagues a bet as to the likely price that the members would set for the daily price of gold, and in order to ensure he could make a profit, set a daily spread. If his friends thought the price would be set higher then they bought the spread, and if they thought it would be lower, then they sold the spread. Trading or speculating in gold was almost impossible at the time and so the popularity of his spread based system started to gain in popularity in the city. At the same time, the second oil crisis triggered a rush to buy gold, with prices soaring from $100 an ounce to over $850 per ounce by the early 1980’s. Speculators saw the opportunity to make money very fast, using Stuart Wheeler’s spread betting system, and many did! Based on his success he formed IG Index (the IG stands for International Gold, the roots of the business ) and from there he branched out into stocks, shares, indices, commodities and a whole array of other financial related instruments.

Interest in this new way of trading intensified as first the bull run from 1984 through to 1990 began, followed by Big Bang and deregulation of the London Stock Exchange in 1986. Coupled with the privatisation policies of the Conservative government, interest in stocks and shares had never been so high amongst the general public, and so interest in spread trading grew, providing a simple way to buy and sell, with no need for a traditional stock broker. The financial spread betting market had been borne.

Since then of course spread betting has expanded into a variety of others markets. The largest of these is the sports betting market with spread betting companies covering every sporting event around the world on a 24 hour basis, whether it is football, cricket, tennis, rugby or racing – all are covered with a wide variety of spread bets available, and not just on the outcome of the event itself. The financial spread betting market is catching up fast and growing quickly as the markets and instruments available for us as traders grows all the time. Finally, spread betting has also developed in niche market betting  such as the political arena for general election results, or the election of a new political leader, whilst in the media and celebrity market, spread betting is now very popular for TV competitions and public prizes such as the Booker. Spread betting has come a long way in a very short time!

For us as financial traders, and for the purposes of this site I propose to concentrate on the financial spread betting market, and provide you with a useful guide. So, what is financial spread betting and how does it work in practice. Let’s start by looking at the spread betting methodology in its broadest sense, and try to understand how the spread betting system works, how the spread betting companies price the spreads of their bets, and how we as traders enter the spread betting market.

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