Summary: There are actually quite a lot of spread betting companies in the market competing for your business. This page looks at a little of the industry history and a few of the main players.
In 1997, Ladbrokes entered the spread betting industry making five companies at that time. The other four were IG Index, City Index, Sporting Index and Hills Index. The entry of such a big player as Ladbrokes seemed sure to shake the industry up.
It did. In 1998 Ladbrokes left the market!
If ever there was to be proof that the house does not always win, this might be it. It does offer some hope for the average sports or financial gambler though. If a firm the size of Ladbrokes struggled in the market, there must have been someone making all their money. Gamblers perhaps?
In terms of financial spread bets, there are two companies that blazed trails in the market. They are City Index, which has been running since 1983 and IG Index (IG stands for International Gold) which started life as a company trading derivatives in the gold market in the 1970s.
These two firms had a lock on the market for quite some time. In
their defence, running a financial spread betting company must take an
incredible amount of computing power and some pretty sophisticated
mathematicians.
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Luckily for them, both companies are based in central London which, due
to the London Stock Exchange and 'The City' has a very large number of people employed in the markets,
including thousands of stock traders, investment bankers and brokers. In other words, they were
ideally located to reach a prime market.
The irony of this is that these days, most gambling type companies and websites have an onshore and offshore component. Spread betting is the same and so London and some far away warm location is likely. The European locations that host the majority of online trading sites are Malta and Gibraltar.
Firms that have a London base are therefore regulated by the Financial Services Authority.
The location of residence of the trader will influence whether he
or she opens an account in London or not. Residents of the United
States are generally not allowed to open accounts. Whereas UK legislation allows their residents tax free spread betting in the UK.
It often is not easy to be sure of whom you are dealing with at
first. Some spread betting companies offer what is known as a 'white
label' service. This means that they provide the actual service, but the
product is named something different so that it fits in with the brand
name of the company doing promotional work. There is nothing wrong with
this kind of operation, though it can seem a little confusing at first.
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Since spread betting companies earn their commissions by being in the
middle of trades, it is in their interests to provide liquidity. This
means that winning accounts are often much more tolerated than by a
normal bookmaker, simply because they have needs to offset positions. In this regard, these firms seem much more like stockbrokers than bookmakers, which means that when thinking about how do spread betting companies make money, it is typically not at your expense in the same way that a casino would.
This is great news for the successful trader because it means that there is little or no requirement to have ocassional deliberate losing trades (something that many professional gamblers do).
It is worth pointing out that this margin, earned by being in the middle of most financial spread bets, differs between markets and companies. For this reason, many people open accounts with several companies. This enables them to shop around for the best prices when they take a position. The difference over time and many trades of taking positions with the 'best' available price compared to the 'worst' is likely to be a significant amount of money.
There has been very little scandal in this sector. This story about WorldSpreads (now in administration) is, however, a black mark on the sector. In contrast, the development of spread betting has been widely blamed for corruption in sports such as horse racing and cricket. This overall lack of scandal suggests that the companies play a straight game and do not cheat - considering the competition in their marketplace, this makes sense.
As mentioned elsewhere, spread betting is a very high risk form trading. As such, the firms themselves each offer a spread betting guide and a range of informational services to help their customers. As a potential client, we highly recommend taking the time to learn how spread betting companies work to give yourself the best possible chance to profit.
If you would like to read more, please follow these links:
Spread Betting Financial Markets For Beginners
How To Spread Bet - 7 Important Lessons For Beginners
3 Great Spread Betting Tips
How Easy Is Spread Betting Shares?
Spread Betting Forex Markets
FTSE Spread Betting Information For Beginners
What Spread Betting Software Should You Use?
How To Make Successful Financial Spread Bets