Spread betting over the last decade has been on a constant rise and the number of investors whom are spread betting is very encouraging, especially given the fact that spread betting has been a victim of unsubstantiated misconceptions and perceptions. Now many providers in spread betting are bound by common interests but competition amongst them as well as regulation by authorities has ensured that the standards set limit any possible chance of fraud or short changing in the perspective of the investors.
The way in which spread betting brokers operate has been the topmost question asked by many investors. Spread betting providers can only stay in business if they are able to generate enough revenue, and most of this revenue is generated through spreads. Competition amongst financial spread betting firms therefore is based mostly on who is providing the most attractive incentives to the investor. Each broker is looking to gain new clients, and hoping their offers are favoured by traders, they will often offer tighter spreads and other incentives.
Aside from competition among providers regulatory control by legislation has also had its share in creating integrity and transparency in spread betting. In 2007 the Mifid (Markets in Financial Instruments Directive) was introduced for spread betting providers and they must offer the best execution strategies for their clients. In other words when you look at this from a spread betting perspective it simply means the initial price of the bets will be fixed and the provider will offer the best price with regard to the underlying market. Furthermore the directive limits the capacity of providers to widen spreads for their own gains or change the movement of the spreads on the basis of what they may see as the potential direction of market movements.
The way providers have managed to accommodate a wide range of investors without discrimination can be attributed to these facts yet unlike some years back, today you can trade on small volumes. Another misconception is how spread betting firms raise their revenue; many believe that the firm will hedge positions opposite of the customers. This is not the case, most match up the trade with the investors so as to share whatever risk that come.