Financial spread betting has been around in the UK and in Ireland for about 60 years but has experienced an impressive rise in popularity in the last two decades. In the early years, financial spread betting was limited to institutional investors, city traders and high-rollers however the product has now spread amongst smaller investors and spread betting in the UK keeps growing in popularity. The opportunities for private traders to have access to the same markets and to use similar trading mechanisms as the professional traders has meant that they have become more sophisticated in their requirements and more successful in their application of trading strategies.
In 2012, around 92,000 people in the UK were engaged in spread betting. The UK spread betting and CFD market has continued to grow in recent years, with major providers reporting significant increases in client numbers and trading volumes. Notable brokers like IG and Pepperstone have been central to this expansion, offering a wide range of assets and services to cater to both beginner and professional traders.
Some clients place a minimum bet once every few months or so, others take extremely large positions every day. We come across all kinds of traders – some are day traders, some run positions for much longer. All I can say is that all types of trader are welcome – it’s good for us to have such a broad cross-section of clients. We’re basically a one-stop shop where you can bet on individual shares, stock indices, currencies, bonds, interest rates and commodities such as oil, coffee, gold and silver – all on one account, and in the underlying currency of your own choosing. The bets we offer on shares include the major US and European stocks and the majority of UK stocks with a market capitalisation of more than £6 million.
In 2024, the number of UK clients engaging in spread betting and CFDs remains robust, with millions of active users on platforms like IG, which serves over 50,000 traders, and others like Markets.com and Pepperstone. The market is also heavily driven by traders’ increasing awareness of leveraged trading opportunities and tax-free potential for UK residents, which continues to attract a diverse range of investors.
Several factors have contributed to the growing popularity of spread betting. The trend of retail investors seeking more active roles in their investment decisions, along with the failure of the traditional buy-and-hold strategy, has driven individuals to explore alternative options like spread betting. One important factor behind why retail users have flocked to the uk spread betting companies at the expense of more traditional brokers is probably a result of the way the UK spread betting companies have repackaged the products they are offering. A spread bet on the FTSE-100 is effectively nothing more than an OTC version of the futures contract that trades on Euronext, although many of its users may not know that. By making such products available in virtually any amount, the uk spread betting firms have arguably opened the market up to a far wider range of potential clients. The rise of online platforms, including mobile trading, has made these services more accessible to a wider audience. Many traders now see spread betting as an attractive option due to its tax-free status and potential for leveraged returns.
So how does spread betting work? It is similar to ordinary betting, but there are important differences. With fixed-odds betting, such as horseracing, you are either absolutely right (your horse wins and you win a sum whose size is dictated by the quoted odds) or you’re absolutely wrong (your horse doesn’t win and you lose your stake). With spread betting, the more right you are, the more you can win — but the more wrong you are, the more you can lose.
The spread betting market has become more diverse over time. In the past, it was predominantly a niche for professionals in the City of London, but now it includes individuals from a broad range of professions, including doctors, lawyers, and those from “middle England.” While spread betting is still primarily popular in cities like London and Dublin, it has expanded to other areas such as Croydon, Poplar, and Watford.
The spread betting industry continues to evolve, with more individuals taking a DIY approach to investing due to better access to information and tools provided by execution-only brokers. The ability to trade across various asset classes—stocks, indices, commodities, and currencies—through a single account has attracted a wider range of traders looking to diversify their portfolios. Additionally, changes in trading habits and preferences are evident, with some investors focusing more on currencies and commodities rather than traditional equity markets.
The typical customer at a spread betting company is a male, aged between 30 and 45 years. However, this also includes CEOs of large companies trading their individual portfolios as well as fund managers running multi-national portfolios. A report from one spread betting company also shows that the number of 18-30 year olds clients is increasing. In the United Kingdom 18 to 30 year olds traders now make more than a quarter of clients.
Joshua Raymond, a market analyst points to a different profile: ‘Ten years ago, the standard spread bettor would be 45 years old, usually male and with a work background in the city’ ‘Today, they are slightly older at 48, still male and with a share dealing background but their backgrounds are much more diverse.’ Mr Raymond continues: ‘For every banker opening a spread betting account there are two engineers. For every engineer there is one chartered surveyor. For every chartered surveyor there is a taxi driver and so on and so forth.’ The standard profile of a spread bettor has and will continue to change over time.
Despite this growth, spread betting remains a niche market in the UK, with many still unfamiliar with the practice or hesitant to participate due to its perceived risks. However, as financial awareness increases and more people seek control over their investments, the number of individuals exploring spread betting is likely to rise.
IG said says that its spreadbetters represented professional Middle England. Access to broadband and the growth of professional classes taking charge of their own financial affairs has transformed IG’s client base. Our typical client is 37, he is male. He works in a managerial or professional capacity or runs his own business. They tend to be decision makers – individuals earning more than £40,000 and are likely to hold a professional job: doctors, accountants, lawyers, IT specialists or those involved in corporate middle management or are self-employed make up the bulk of the company’s client base. Just 10pc of customers are female. He absolutely doesn’t work in the City. As it says here, only 2.2% are city based clients. That is as measured by people who get compliance copies sent to their compliance department. Maybe there is some under reporting in that, but I think you can say with some confidence that less than 5% of the client base is city based. Compliance rules in the banking sector make it difficult for City people to trade with us. And as I said, overwhelmingly male. In the year just ended 11% of new recruits were female. That is up from 9% the year before and 4% six years ago. So there’s a progressive shift there. Most use spreadbetting as an extra tool in their investment portfolio and are equally adept at shorting or going long on a stock. Increasingly, they are also trading forex currencies, indices and commodities. Tim Howkins, Chief Executive of IG Group.
Typical Client
The typical client profile for spread betting in the UK has evolved over the years, with some common trends emerging in terms of stake sizes, location, and occupation. Here’s a breakdown of these factors:
1. Stake Sizes
- Average Stake Size: The typical stake size for spread betting clients varies, but many traders start with modest amounts, with the average being around £1 to £5 per point when trading on major indices like the FTSE 100. Some brokers report that the majority of new clients begin with stakes of approximately £3 per point.
- Range of Stake Sizes: Experienced traders tend to increase their stakes as they become more comfortable with the risk, with some investing in much higher amounts, especially in volatile markets. Traders can also adjust stake sizes based on their risk tolerance, making it a flexible approach to trading
2. Location
- Urban Concentration: The majority of spread betting clients in the UK are located in major urban areas. London is the largest concentration, followed by other cities such as Dublin (though outside the UK), Milton Keynes, and Watford. These locations reflect areas with higher levels of financial activity and access to technological infrastructure.
- Regional Diversity: While London remains a hub for spread betting, there is growing interest from other regions, with spread betting becoming increasingly popular in suburban areas, such as those around the South East of England
3. Occupation
- Predominantly Professional: Historically, the spread betting client base has been heavily skewed towards professionals from the financial services sector, such as bankers, brokers, and those working in related fields. However, the market has diversified, with more traders from varied backgrounds joining. As of recent reports, engineers, chartered surveyors, and even taxi drivers are also becoming part of the client base.
- Age and Occupation Trends: Clients tend to be middle-aged, with the typical spread bettor being around 42-48 years old. The spread betting market is seeing an influx of younger traders as well, particularly in the 18-30 age group, reflecting a trend toward more self-directed investing and trading. Professionals from outside the finance sector are becoming more active, with many clients coming from fields like law, IT, and retail.
4. Gender
- Historically, spread betting clients were predominantly male, but there is an increasing trend of female traders entering the market. Some brokers report that the number of female traders has been rising, although men still make up the majority of clients.
Jayne Banks, communications officer at CMC Markets, agrees that the spread betters’ client base has widened: ‘Well over 95% of our clients would be recognised as retail investors rather than professionals. They are often people who have had some experience in physical share trading but are looking for a more cost effective and flexible alternative. UK spread betting firms tend to have a short to medium term view on an instrument and are therefore quite active – some clients have been known to trade 500 times per day.’
Growth Trends
The spread betting market in the UK remains a significant segment of the retail trading landscape. As of recent reports, the UK market has seen steady growth in participation, with spread betting being particularly popular among retail investors looking for flexible and tax-efficient trading options.
In terms of market size, while exact figures can fluctuate, estimates suggest that there are over 100,000 active traders involved in spread betting across the UK. For example, IG Group, one of the leading spread betting providers, reported in 2023 that it serves over 300,000 clients globally, with a significant portion of these users based in the UK.
The spread betting market is heavily influenced by market volatility, which encourages trading activity. In times of financial uncertainty or significant market movements, trading volumes typically rise. For instance, spread betting volumes surged during periods of high volatility, such as during the 2008 financial crisis, and more recently during the economic turbulence caused by the COVID-19 pandemic.
Additionally, the advent of mobile trading platforms and improvements in digital accessibility have helped spread betting become more mainstream, with users able to trade easily from their smartphones or computers. This has likely contributed to the continued expansion of the market, attracting younger and more tech-savvy investors.
‘For every banker that opens an account, we now have chartered surveyors and taxi drivers doing the same thing. Trading the financial markets is no longer an exclusive club and spread betting has in some way opened the door to allow anyone with an interest in the financial markets to do something about it.’
Concerns for Competitors
UK spread betting companies have seen significant growth in recent years, expanding their product offerings and attracting a more diverse client base. This growth has made them increasingly mainstream, raising concerns about the competitive impact on traditional brokers and financial exchanges.
While spread betting used to be the domain of City professionals, its accessibility has broadened significantly. “Today, doctors, lawyers, and even teachers are spread betting as part of their investment strategies,” explains Richard Banks from CMC Markets. The average client profile is shifting, with increasing numbers of retail investors from various sectors engaging in the market, drawn by the low-cost entry and ease of access. Recent reports from brokers show that over 60% of new spread bettors now come from outside the traditional finance sector, with many individuals opting for spread betting to diversify their portfolios.
For active traders spread betting in the uk is already viewed as mainstream. The active traders are the high value clients that are moving from brokers and physical shares across to the execution only derivatives providers. Traditional brokers are recognising that to keep their most valuable clients happy, they need to offer more cost effective and flexible products. It is possible for the two products to work in tandem as clients use different products for different strategies.
Despite the growing popularity, the high-risk nature of spread betting remains a concern. The gearing involved means that investors can gain significantly but also face substantial losses. As Joshua Raymond warns, “spread betting is not suitable for everyone, especially for those new to trading or with limited experience.” Brokers continue to stress the importance of educating clients about the risks involved.
Market Impact and Hedging
While spread betting continues to expand, its relationship with traditional financial exchanges is complex. Many spread betting companies manage their risks by hedging large volumes in the market, thus contributing to liquidity on platforms like the London Stock Exchange. However, they do not directly challenge the positions of these exchanges, as the liquidity provided by spread betting is often smaller in scale compared to institutional trading.
Conclusion
The UK spread betting market continues to evolve, with stake sizes typically ranging from £1-£5 per point for beginners, and urban areas like London and the South East being the most common locations for traders. The client base is becoming more diverse in terms of occupation, with professionals from various sectors, not just finance, joining the ranks of spread bettors. The trend of younger and more tech-savvy individuals entering the market is also growing, largely due to the rise of mobile and online trading platforms.
Looking ahead, spread betting is likely to remain a popular tool for active traders. The simplicity, flexibility, and potential for tax-free profits are key drivers of growth. However, its high-risk nature means it will continue to be unsuitable for some investors. As the industry evolves, the question of how to balance risk with reward will remain a key focus for traders, brokers, and regulators alike.
