A brief history of CFD( contract for difference)

A Brief History of Contract for Difference (CFD)
By Bryan Rollins

If you want to enter the world of trading contracts for difference or CFDs, then one of the basic things that you need to learn is its history. This is because by understanding this, you will be able to appreciate how it has been developed as well as the vital points of its progression or innovations. With that, you can use those pieces of information in order for you to have better positions and overall strategies when it comes to making strategies. It is in this light that this article will be discussing its history briefly.

Originally, in 1990s, CFDs were developed in London in order to serve as a type or way to swap equity that can be traded based on margin. Its invention or creation is commonly credited to Jon Wood as well as Brian Keelan. After its inception, this kind of instrument wans then initially used by hedge funds as well as various institutional traders in order to primarily hedge their exposure to the stocks in the London Stock Exchange. It was seen as a very cost-effective way to trade because a trader will only be required a small amount of money, which is the margin, to have the trade. Aside from that, traders were also able to avoid paying for the stamp duty tax in United Kingdom since there is no physical share being traded at hands.

It was only in late 1990s when CFDs were introduced to the retail traders. This is when the innovation of the online trading platforms was introduced as well. Hence, this time and with all innovations and developments in the market, traders had easier lives in seeing live prices of stocks and markets in real tie.

By the start of the new millennium in 2000, retail traders began to realize that the real advantage and benefit of trading CFD is not because they are exempted from stamp duty taxes. Rather, its true benefit lies on the fact that they are able to leverage and trade on underlying instruments. Hence, this is the beginning of the significant growth in CFD trading. As a response of CFD providers, they have expanded the products that they are offering, which consequently included indices, global stocks as well as commodities and even bonds.

In 2001, CFD providers and traders realized that it has almost the same benefits with financial spread betting. Of course, this is except to the fact that they are treated different in terms of taxation. Hence, traders have then utilized this along with the other financial transactions or opportunities to earn profits free from taxation and in a more efficient way. Further, years after that, this has expanded in the overseas market.

CFDSpy.com is an online trading portal and education site, aimed at making it easier for traders to learn about CFD covering a broad base of different investment types and instruments, and CFD history.

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Symbol Bid Ask Spread
EURUSD 1.17900 1.17920 2
GBPUSD 1.33470 1.33500 3
USDCAD 1.28510 1.28540 3
USDJPY 113.460 113.480 2
USDCHF 0.99060 0.99090 3
AUDUSD 0.75320 0.75350 3
NZDUSD 0.69120 0.69170 5
EURGBP 0.88310 0.88340 3
EURCHF 1.16810 1.16840 3
EURJPY 133.780 133.810 3
AUDJPY 85.460 85.510 5
GBPJPY 151.450 151.510 6
XAUUSD 1243.96 1244.36 40
XAGUSD 15.724 15.774 5