History of Spread Betting
The 'Wheelers' begin to turn
In 1974, a banker named Stuart Wheeler was a member of an elite group made up of the top bankers in London. Once a week, in the offices of N.M. Rothschild, this group would meet and discuss gold bullion. Their focus was to fix the price of gold for the following week. This group had such power that whatever price they set for gold would be the base price for the entire market for the rest of the week.
Seeing an opportunity for a market, Wheeler began to predict what the price of gold would be set at for the following week. He would create a spread and give it to a group of his friends before the meeting. If the friends thought that the price would be higher than the spread, they could buy the price and those who thought the price would be set lower than the spread could sell the price. This is the origin of spread betting, but originally it was only offered on one commodity; gold.
As Wheeler continued to make these spreads for his group of friends, it seemed that more and more people wanted to get in on the spread betting. The gold market was very hard to get into during this time and Wheeler’s spreads provided a way to speculate on the price of gold, without having to ever purchase it. Eventually, demand for Wheeler’s spreads became so high that Wheeler created the IG index, which is still one of the largest Spread Betting companies in the world. The IG index was the first Spread Betting Company created and held a spreading monopoly for several years until other companies came to appear due to high demand. The next companies to come were City Index, Sporting Index, and William Hill, however the last two were mainly creating spreads for sports and did not participate in much spreading in the financial world.
In 1977 gold was on the rise and people involved with gold were making a lot of money. Since speculating on the price of gold was the original purpose of Spread betting, this meant that the people familiar with spread betting were getting rich. This caused spread betting to boom as people searched for new places to invest their money. Gold peaked in 1980 and the demand for spread bets was at an all time high. But there was one problem; though demand for these bets was high and IG index was doing very well, there was still a large market to be tapped. Because spread betting was a new phenomenon in the finance world, the general public was unaware of it and so stayed away from it. Wheeler needed to find a way to inform the public about spread betting and perhaps the answer was to forget about gold and start spreading other, more common financial assets.
