Derivatives and securities, whose values are been derived from some other assets, are used for many years by companies & wealthy to invest & manage the risks. Their utilization is so commonplace they exist from wheat & sugar to price of gold or level of rainfall. The spread betting & Contracts for Difference are very close relations of most basic derivatives. All these retail derivatives will make international markets available to the normal investors and will reduce the tax liabilities. Retail derivatives industry also faces many challenges. In order to grow it should expand the constituency in order to include ethnic minority, female, international & older customers when considering about product development & how best to represent an industry & all the customers.
In late 19th century American satirist Bierce wrote that, ” gambling known as the business looks with an austere dis-favour on business known as the gambling”. What was true in 19th century is as true today and it gives spread betting industry with one of the most significant challenges – and how to convince consumer and essentially there is not any difference between the traditional trading and the spread betting. Word gambling is also defined by dictionary as:
Money, which is risked for the possible monetary gain
Take risk in hope of favorable outcome.
With possible exception of all those who invest in the companies for sake of company it, leave the money with company, definition sufficiently covers most of the trading activity.
Knowing that it is not a product that will carry inherently more and less risk but person & mindset by using that product will help not just an individual consumer but as well an industry, legislators and regulators. This understanding would, have produced entirely various ruling by House of Lords in Hammersmith and Fulham `swaps’ case of late 80s. In 1991 HoL ruled local authority rate swaps were unlawful. Their lordships also ruled in this method not because swaps were been used as hedging instruments but they were been used illegally in this instance. Reality was it was performance of councilors that were at fault & not financial products or concept of hedging. Covering the risk on behalf of rates payers appears eminently sensible action. Real issue, which led to such poor ruling by the lordships, was that process smacked of the gambling in traditional usage of word & therefore, was considered as being an overly risky.