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The history of spread betting

Did you know people have been betting on stocks for over a century? Here’s our quick guide to the history of financial spread betting.

The bucketeers

Trading on your phone or tablet today, it’s difficult to imagine the chalkboards and inky ledgers of New York’s bucket shops of the early 1900s. Here, ‘bucketeers’ speculated on the movement of prices on the New York Stock Exchange, buying and selling without ever owning a piece of the underlying stock. The shop owner effectively played the role of bookie, with bettors collecting their winnings or settling their debts at the end of the day.

The practice was outlawed in the 1920s. Spread betting as a concept would not re-enter the mainstream until the 1970s, when a trader called Stuart Wheeler had a novel idea.

1974, London

Despite the demand to speculate on the price of gold, most UK law prohibited individuals from doing so. Wheeler, a barrister-turned-investment banker, bypassed the restriction in 1974 by allowing clients to bet on the performance of gold prices, rather than trading any of the precious metal itself.

This simple work-around allowed Wheeler to meet demand for gold price speculation while satisfying the regulator that no physical bullion was being exchanged. Modern spread betting was born.

1980s – pros only

Financial spread betting grew in popularity in the 1980s. There were several factors influencing this, from a bullish market to the deregulation of the London Stock Exchange. New providers entered the fray, emboldened by a roaring economy.

There were limitations to spread betting’s growth. The technology of the day meant companies couldn’t offer real-time spreads to their clients. Moreover, clients tended to be professional traders only. The practice was still alien to the wider public.

1990s – tech changes everything

The tech boom of the 90s had a huge influence on spread betting in two distinct ways. Firstly, the technology itself not only allowed companies to develop sophisticated trading platforms, but personal computers enabled access for the wider public. Betting on stocks and shares was no longer purely the domain of the pro trader.

Secondly, the tech boom brought with it a fresh surge in equity prices and renewed interest in market speculation. Spread betting companies were rapidly able to attract new customers.

Present day

The tech bubble burst in 2000, followed by the financial crisis of 2008. These events put public focus on the stock markets like never before, and drew attention to the ability of spread betting to ‘go short’ on financial markets. Equally, sharp moves in the markets accentuated the high-risk nature of spread betting.

Meanwhile, technology has continued to improve and reach younger, savvy investors across the world. As regulations change and political volatility becomes the norm the world over, financial spread betting remains an important vehicle for speculative traders.

Published: 6 January 2020

You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.

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