Contracts For Difference Trading: What Is It All About

FinanceTrading / Investing

  • Author Rayner Chandler
  • Published August 15, 2010
  • Word count 458

CFD or Contracts for Difference are quite popular these days. Both private traders and investors have taken to CFD trading on a large scale because CFD trading provides them with plenty of flexibility and the ability to go long and short and boost their trade. Along with that they also get to hold on to their existing positions for longer time if desired in lesser cost than conventional share trading. You can imagine the popularity of CFD trading that almost 30% London Stock Exchange transactions are based on CFD. CFD gives you the freedom to exploit market conditions to your advantage without needing to buy the actual underlying asset. This feature saves you stamp duty and also ensures that you do not have to make huge capital investments.

Nowadays most banks round the globe provide CFD trading. With more and more retail as well as professional investors switching to contracts for difference, conventional share trading has taken a back seat. The way CFD trading is growing, it is expected that is will soon occupy a major share in stock exchanges and global markets. CFD trading is in fact a smarter way of share trading. One very important aspect that you need to keep in mind while going for CFD trading is the bank or broker you choose. Different brokers offer different commissions so it is important that you do thorough research and choose a broker after weighing all factors carefully. Finding an affordable as well as reliable company is not difficult. These days it is possible to find a company for CFD trading very easily online.

CFD trading is has infact existed for over a century now. It originally started in London and has gained wide spread acceptance today. Basically it involves swapping equities. You get the benefit of being traded on margin and being exempt of stamp duty in this. CFD is widely credited to be invented by Brian Keelan and Jon Wood, both of UBS Warburg.In the late 1990s CFD were first introduced to retail (or private) investor. They were popularized by a number of UK companies, whose offerings were typically based on innovative on-line trading platforms that make it easy to see live prices and trade in real time. Investors quickly realized that the real benefit of trading CFD was not the stamp duty exemption but the ability to trade on margin on any underlying instrument.

Within no time a good number of active traders and speculators got drawn towards Contracts for Difference since it was a cheap and effective way to speculate on market movements (remember that more buyers and sellers make products more liquid thus bring the cost/commission down). This was the start of the growth phase in the use of CFDs.

Find more interesting articles at cfd trading.

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