Although the actual creator of the CFD is still debated, it is believed that this financial tool’s history can be traced back to a financial services firm in London that is believed to have created CFDs in the early 1990s for hedging purposes. CFDs were initially used to offset risk of loss from stocks traded on the London Stock Exchange. CFDs were seen as favourable financial tools since they required a small margin, no physical shares were exchanged, and traders were able to avoid certain taxes.
The late 1990s saw the rise of online trading and CFDs were introduced to retail traders by brokers as a new investing tool. Now, with the click of a mouse, traders were able to trade stocks, commodities, and indices that they did not have access to before. After this introduction, CFDs grew rapidly among traders and became very popular.
Further adding to CFDs popularity was the introduction of CFDs to the Australian market in 2002. The CFD market in Australia grew quickly, with some estimating nearly 40,000 active CFD traders in Australia alone.
In 2007, in addition to OTC CFDs, Australia was the first country to offer CFDs on an exchange. Exchange traded CFDs over traders several advantages, including regulation, fairness, transparency, and counterparty risk. Conversely, trading CFDs on a regulated exchange results in higher costs and a limited number of CFDs available.
Today CFDs are very popular in countries where they are available and are offered in a very diverse range of financial assets. Examples of CFD types that can be traded include share CFDs, Forex CFDs, commodity CFDs, and treasury CFDs.
Where Can I Trade CFDs?
While CFDs are an attractive trading tool to many people around the world, various regulations govern the availability of CFDs across the world. CFD trading is permitted and traded in Australia, Austria, Canada, France, Germany, Ireland, Israel, Italy, Japan, The Netherlands, Luxembourg, Norway, Poland, Portugal, Romania, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom and New Zealand.
CFDs are not allowed in the United States because of SEC (Securities and Exchange Commission) restrictions on OTC financial instruments.
What CFDs Can Be Traded?
One of the most appealing aspects of CFDs is the ability to trade international shares and indices, even when a trader does not have direct access to that market. The different types of CFDs available is enticing. For UK, Australian, and German traders, this means being able to indirectly trade shares of Google, Apple, and IBM.
Simplicity is another significant factor that attracts different people to CFD trading. All one needs is a device with internet access to begin trading from the comfort of one’s home or anywhere where internet access is available. Global stocks, commodities, currencies, treasuries and indices that can be traded come from countries such as Australia, Finland, United States, Spain, France, Germany, Japan, New Zealand, United Kingdom, Hong Kong, Switzerland, Singapore, and Canada to name a few.