What is CFD? How to Trade?
CFD stands for Contract for Difference. These have been around for many years in different guises and are very straight forward.
They are simply a vehicle to buy or sell financial products such as equities or commodities without having to put up the entire value of the trade, by trading on margin. Equity CFD trading in its present form began in the 1990s. It was introduced by stock brokers to allow their hedge fund clients to gain large downside exposure to the market using high leverage.
CFDs gave them exactly what they needed with the added advantage of not having to pay stamp duty. This was the main market for CFD’s for most of the decade until the technology boom of the late 1990s began at which point the awareness of CFD’s became more prominent.
Traders then had the ability to speculate on the increased volatility of stocks using leveraged CFD’s over a short time period. Today CFD’s are available on a vast array of markets, not just equities. They are also available to the retail user at home rather than just the City professionals.
Current reports estimate that as much as 25% of the UK stock market turnover is attributed to CFD trading. CFD are also beginning to be traded in countries such as Canada, Singapore and Eastern Europe.