The rising popularity of spread betting and CFDs

Have you considered CFD trading?

Today, spread betting and CFD trading are activities that a range of investors partake in.

When the concept of each was born, they were designed to benefit institutional investors and traders, with the general public largely excluded from both.

However, over the years, several notable developments have brought both spread betting and CFD trading to the masses, giving them the opportunity to enjoy the potentially huge profits on offer.

While there is the chance to make significant profits, CFD trading and spread betting carry a high level of risk to your capital, meaning you could quickly lose more than your initial investment. They are not right for all investors and you should ensure you fully understand the risks involved and seek independent advice if necessary.

CFD trading has been in existence for little over two decades. It was designed with a single purpose in mind - to give wealthy clients the opportunity to short sell the London Stock Exchange.

These clients wanted a way to short sell the market using high leverage to boost profits and CFD trading provided them with a way to do so. As well as employing leverage, CFD trading had the added advantage of allowing clients to avoid paying stamp duty, as the underlying asset is not purchased.

For the rest of the 1990s, CFD trading was the preserve of professional investors and traders, however, towards the end of the decade, CFD trading was brought to the public.
The technology boom of the time saw widespread adoption of the internet, which benefited private individuals in two ways.

To begin with, it meant that CFD trading companies could reach private investors much more easily and having discovered a way to reach the mass market, various companies launched online platforms that gave people the chance to enter into CFDs.

At the same time, it gave private individuals access to the vital price information and other important data needed to enter into CFDs with confidence.

The dot com boom put private individuals on a level playing field with institutional investors and the internet also meant that novice investors could learn what CFD trading involved and what they needed to do to improve their chances of success.

Today, technology continues to push the market forward, with many companies now offering mobile platforms for investors to use.
Spread betting has been around longer than CFD trading and was born when Stuart Wheeler, an investment banker, presented a group of bankers with a concept that would see them set the gold price.

Mr Wheeler’s plan involved setting a buy price and a sell price and giving investors a choice to either buy the price if they thought it would rise higher than the spread or sell it if they thought it would fall below.

This is how spread betting was born. However, in the 1970s, the only commodity investors could spread bet on was gold. Nevertheless, word quickly spread and increasing numbers of investors were keen for a piece of the action.

Demand grew to such an extent that Mr Wheeler would go on to establish his own spread betting company that is still in existence today.

The 1980s saw spread betting become increasingly popular, driven by the economic boom witnessed at the time. However, the market was still restricted to institutional investors, with the general public largely unaware of the profits enjoyed by traders and investors.

A lack of technological innovation was the main barrier to bringing spread betting to a wider audience, however, the dot com boom of the 1990s changed this, giving consumers access to charts, price data, platforms and educational resources.

The growth of the internet was a pivotal moment in the history of both CFD trading and spread betting, raising awareness of the potential profits on offer and the popularity of both continues to grow.

Both could work for you, however, always be aware of the risks involved and seek financial advice of necessary.