Contract For Difference (CFD) originated in Futures and Options, a derivative desk located in Smith New Court, a brokerage trading firm in London. It was later bought by Merrill Lynch in 1995 worth £526 million. At first, CFD was first done in equity SWAP markets or over-the-counter transactions. It was used by many institutions as risk-reducing strategy and neutral trading as well. This has also become a solution for clients to avoid troublesome and costly stock borrowing whenever they decide to sell short. But not all countries nowadays are allowed to trade CFD.
What countries allow CFD trading?
- United Kingdom
- South Africa
- New Zealand
- Hong Kong
- Spain (Contratos por Diferencias (CFD)
- France (Contrats Financiers pour Differences)
- United States (allowed for non-residents only)
Introduction to CFD
The contract for Difference widely known as CFD drafts an agreement between two individuals to exchange the difference which can be decided at the closing and opening price. CFDs are capable of providing you with a wide range of choices as for your underlying asset. It can be currencies, commodities, shares, indices, and a lot more. Traders love CFD because of its flexible format and its sufficient liquidity. When finding the best CFD broker, there is this one thing that you need to put in utmost consideration – how they can deliver the services to you.
CFD in Australia
CFD has been greatly accepted in blossoming countries like Australia. CFD has been available in Australia since 2003. Traders in the country were able to adapt directly to the ways of CFD. Nowadays, the contracts for difference in Australia became one of the most fast-growing financial markets ever seen in history. The popularity of contract for difference started to reach the peak by 2007 as Australian investors and other traders start their own branches in the country.
CFD in South Africa
The popularity of contracts for difference is also very astonishing. For the past few years, the single-stock futures (SSFs) were dominating the country until CFD was introduced. The advantage of CFD against this single stock futures is the dividend exposure. In single-stock futures, a dividend is forecasted while in CFD, there is a contract that states an agreement to switch dividends.
CFD in Singapore
Singapore is fourth in line in the world’s largest markets next to Britain, Germany, and Australia, consecutively. CFD in Singapore has a close competitor, the extended settlement (ES) contract. Both of them basically work the same but extended settlement has low liquidity, paving the way to the success of CFDs.
CFD in Germany
Germany showed resistance against CFD for the past few years since it first opened in 1999. However, this situation has been addressed, thanks to regulation by the European Union which is called Markets in Financial Instruments Directive (MiFID). This has led to Germany being the fastest growing market for CFD trading. The CFD market in Germany is estimated to be growing at 6% per month and has more than 40,000 active traders throughout the country.