CFD Trading: A Breif History
CFD stands for Contract for Difference, CFDs are a financial agreement made between a buyer and seller to make good the profit or loss incurred between when the CFD was purchased to when it was sold. CFDs are common in both Australia as well as the UK, they are mostly offered over indices, stocks and currencies.
In the early days in London where CFDs began they were known as SWAP contracts. It was not until around 2001 that CFDs became accepted by retail investors. It was CMC Markets and IG Markets, two large spread betting businesses based in the UK that bought CFDs to the forefront in the retail trader’s arsenal. CFDs suddenly grew to become widespread in the United kingdom as they did not attract any stamp duty.
At the start of 2000 IG and CMC Markets decided to open offices up in Australia to promote their CFD products. CFDs became popular in 2007. Many international CFD providers noticed the uptake of CFDs in Australia and commenced operations. Presently there are 13 CFD providers operating in Australia and around 35,000 CFD traders.
The press has drawn CFDs to the spotlight in recent times as a result of investors loosing money due to the leveraged nature of the product. This combined with the recent collapse of Sonray Capital Markets has led to the Australian regulator paying close attention to CFDs. The regulators have been primarily interested as to how providers manage client money.
CFDs are the most popular financial product in Australia. It is estimated that CFD volumes account for approximately 35% of the turnover on the ASX, however this is difficult to confirm as CFDs are an over-the-counter (OTC) product.
CFDs are mostly traded over the internet using a variety of trading platforms offered by the main CFD providers. Many of the CFD platforms used by CFD providers were originally developed for forex trading and later evolved into CFD trading platforms.
Australia has the highest portion of share ownership in the word per capita as a result it is not surprising that many CFD traders also trade shares. The phenomenal growth in the share market in Australia has led to CFD trading becoming popular in the share trading community.
Before making the commitment to trade CFDs it is important that you are aware of their risks and benefits. It is important that you read the Product Disclosure Statement issued by your CFD provider which outlines CFDs in detail including the risks and rewards, only then should you consider whether CFDs are right for you.
Learn more about CFDs. Stop by Ben McGrath’s favourite site where you can find out all about CFD trading and how it can help bring you the financial freedom you deserve.
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