How Spread Betting Started
The idea of spread betting was created by Stewart Wheeler, the founder of IG Group, in 1975 when he started to make a market to his friends on the price of gold. Every week, in those days, a select group of people met in New Court, at the offices of N.M. Rothschild, the merchant bankers, to ‘fix' the prices at which gold bullion would be bought or offered for sale by the firms that dealt in the metal.
When they had agreed on the prices they announced the result to the market, and that became the basis on which gold would be traded until the next ‘fix'. Wheeler made a ‘buy' and a ‘sell' price on where he thought the next ‘fix' would be set.
Those who thought that the price would be above his placed a buy bet, those who thought the price would be below placed a ‘sell' bet. Such trading was a complete innovation in those days, but the amount of interest it generated in such a new market encouraged Wheeler to expand and widen the choice of instruments on which clients could bet. This was the birth of IG Index (International Gold), which was the forerunner of all the spread betting bookmakers today.
In 1985, Jonathon Spark and Michael Spencer went to Paris to watch the Prix de l'Arc de Triomphe at Longchamp, which is one of the premier horse races in France . Until that time, the only way that you could bet on the result of a horse race in the UK was to try to forecast and nominate a specific horse that would either win, or finish among the first three (occasionally four) horses past the post.
Sometimes it was possible under certain circumstances to bet on the outcome of a stewards' enquiry (e.g. whether an objection would be upheld or dismissed), or the distance by which the winner beat the second (e.g. a short head, a head, a neck or half a length) in the days before cameras were installed at every racecourse.
Messrs. Spark and Spencer had an argument, not about whether either of their selection would win the race, but about which of either horse that they fancied would beat the other, and by how many lengths. The concept of spread betting can best be illustrated by this different approach to backing your conviction. It works like this.
If you think that horse A will beat horse B at the end of the race, you ask the bookmaker (or the person who fancies horse B with equal conviction) for a price. Suppose he makes ‘a price of 2 lengths at 3 lengths'.
Let us assume that you have great faith in your opinion that horse A is far superior and altogether a better horse and will finish the race considerably ahead of horse B, you would ‘buy' lengths. You would place a ‘buy' bet at a stake of – say - £100 per length.
That means that for every whole length greater than 3 lengths that horse A beats horse B, you will receive £100 from whomsoever you placed the bet. Conversely, for every whole length greater than 2 lengths that horse B finishes in front of horse A, you will pay £100.
You think that Horse A will beat Horse B. The odds that are quoted for this are - 2 lengths, at 3 lengths. You place a ‘buy' bet at £100 per length.
The race result- Horse A sixth, Horse B eleventh i.e. 7 lengths between A and B.
YOU WIN 7 less 3 = 4 x £100 = £400.
But if the race result had been- Horse A eighth, Horse B third i.e. 5 lengths between Horse B and Horse A, then
YOU LOSE 5 less 2 = 3 x £100 = £300.
Thus it doesn't matter what horse wins the race, there is still a way for you to make winning bets on the outcome.
This concept opened up a whole new vista of betting opportunities and the dealers in the City of London as well as the sporting bookmaking fraternity recognised and welcomed the birth of a great big new market for punters to bet, and money to be made.
Next : Spread Betting Terminology
Full Contents
• An Introduction to Spread Betting
• What is Spread Betting?
• How Spread Betting Works
• How Spread Betting Started
• Spread Betting Terminology
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