The History of Spread Betting: Treading a Fine Line between Gambling and Financial Trading

Financial Trading

Financial Trading

If you were asked to identify the single biggest difference between the modern financial market in the UK and its previous incarnations, then your mind would surely be drawn to the way in which technology has eliminated so many barriers to entry. Whereas leading financial institutions once dominated the market due to their depth of knowledge and the instant access that they had to international markets and commodities, technology and the development of online resources such as Killik & Co has afforded modern independent traders the same advantages.

While this may have created a level playing field for large corporations and single investors, however, the traditional financial products available through the financial market have remained unchanged. Take commodities, for example, which were historically trader by large financial institutions through agreements known as futures contracts. This allowed the parties to fix a price for a specific product and exchange at an agreed later date, regardless of any fluctuation in market value or standing.

The Emergence of Spread Betting: It’s Long Standing History as a Financial Concept

This type of derivative financial product is no longer traded in quite the same way, however, thanks largely to the introduction of spread betting. The application of contemporary spread betting practices is a source of some controversy among financial traders, as many consider it to tread a barely distinguishable line between gambling and serious commercial investment. Despite this perception, however, the principles of spread betting were prominent within historical financial markets long before they became associated with sports gambling.

In fact, the fundamental concept of spread betting and trading futures contracts based in exchanges emerged as long ago as the 1600’s. During this time, a trading market was established in Japan to redistribute or spread the risk associated with the manufacture and sale of rice. The subsequent development of the Dojima and Sakata rice exchanges were of significant importance for the nation’s wealth, and offered an insight into how spread betting principles could be applied to the commodities market.

The Bottom Line and how Spread Betting is applied in the Modern Financial Market

In the modern financial market, spread betting and contracts for difference are the modern representations of traditional futures contracts, and are becoming increasingly popular as trading vehicles. Not only do they allow traders to speculate on price movements across a range of financial products, but they also offer margin based returns that are not dependent on a rising market value.

While some governments and authorities still refuse to accept spread betting as a viable financial trading method, however, history suggests that it has been utilised within the fiscal markets for longer than they would care to remember. Given this and the fact that many investors now consider sports betting itself as an asset class, it is clear that spread betting is now an established part of the financial landscape in the UK.

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