Betting on Financial Spreads

Financial spread betting originated in the 1970s in the financial district of London the City. In those heady days, it was reserved strictly for the sharp suited, Ferrari driving, high-rolling investment bankers and other yuppy types. The stockmarket boom of the 1990s and the drastic decline between 2001 and 2003 taught many traditional buy and hold investors that the strategy simply was not working. Many had been lured into the seemingly comforting belief that the market only really went up and that all they had to do to become rich was to buy a bunch of technology stocks and sit on them for a few years. Hey, you could even fire up your portfolio some more by trading derivatives to add some fire power to the upside potential of your trades. The derivatives used by most private traders in those giddy days was options and in some cases, future contracts. Now, all that has changed.

If all the rich men in the world divided up their money amongst themselves, there wouldn’t be enough to go round.

There is a new game in town. Financial spread betting has the sort of features that should make every serious trade sit up and take notice. Financial spread betting is a type of trading instrument based on the standard structure of a typical financial derivative instrument. Viewed from this perspective, you can think of a spread betting as a derivative on an individual security. It moves in line with the price fluctuations of the underlying financial instrument, such as stocks, shares, bonds, commodities. Like typical derivatives such as options and futures, the price of a financial spread trade is based on the value of the underlying instrument that it tracks.