Author: Ben Morratt
Portfolio Manager
Ben Morratt

The History of CFD Trading

CFD or Contract For Difference is a form of derivative trading where you speculate on the price of an asset without actually owning that asset. Like other forms of derivative trading such as Binary options or Forex, it has become another way for both serious investors and hobby traders to make money either as an income or a second income.

Like Forex trading, CFD is about speculating on prices. In this case, the short or long positions of an asset. A CFD is an agreement between the buyer and the seller to pay out on the difference in the buy and sell price. As a form of derivative trading, it has become a popular choice alongside other types of trading.

But how did CFD trading begin and when and how did it become a popular form of derivative trading offered by many brokers? How does it continue to evolve and what does the future hold? We take a look at the history of CFD trading and give our thoughts on what you can expect form CFD in the future.

In this guide, you will learn:

  • What CFD trading is and how it began
  • How it became accessible and mainstream
  • The future for online retail CFD markets

How Did CFDs Begin

It was in London in the early 1990s when employees of one of the city’s derivative brokers first invented CFD trading. In these early days, it was developed as a kind of equity swap and was used by hedge fund traders and corporate investors as a way to avoid paying UK stamp duty. In fact, in the beginning, it was only large institutions like Merrill Lynch that were allowed to sell short on positions.

By the start of the 1990s, however, it became available to hedge fund traders who used this method of trading to take advantage of the highs and lows of the markets. It was the late 1990s before they became available to retail traders. GNI Touch was the first broker to offer CFD trading on a live trading platform to retail and private traders.

They enabled their clients to trade directly on the London Stock exchange, via the internet. Over time CFD trading evolved and became the popular form of derivative trading that it is today.

Like other forms of trading, the future looks bright for CFD trading.

When CFDs Became Popular

CFD History

It was the late 1990s to early 2000s before CFD trading became more mainstream across Europe, particularly in the UK and Germany. After that many others followed suit with countries like Australia introducing them in 2002.

Contracts For Difference were not however permitted in the US which highly regulates most forms of derivative trading. As the decade progressed, CFDs became popular with retail investors as well as investment institutes and the growth of the internet led to an even more significant increase in this method of trading.

With more access came more opportunities to trade with more platforms, more brokers and a greater appreciation of something that allowed people to operate in something that had tax benefits.

In addition to being able to trade on the internet, other features were introduced to help traders improve their skills and knowledge. Additional resources included demo platforms, stop loss orders to minimise losses, welcome bonuses and more, all of which were designed to make the trading process a much easier and more enjoyable one.

Technically, mobile trading advanced so that traders could either download an app or enjoy the mobile experience from their phone and as technology evolved, more factors were introduced to improve the overall trading on the move.

The Story Today With CFDs

Given their relative new entry to the investment markets, CFDs have come a long way and today are a common trading tool. Now thousands of traders around the world hold a position at any given time, in small part because of the ability to trade on the move using a mobile device which not only allows you to place your trades but also to research the markets and strategies.

Now, with social trading, robot trading, analytical tools and educations resources abound, there is so much access to so much information that you can use it to make much more informed trades. While still a speculative form of trading, this data allows people to remove much of the emotion from trading and make trades based on hard evidence.

Of course, it is not without its risk, and you should still exercise caution with any trading but if you want to play the stock market without buying stock, this is an excellent way to do so, and more investors are finding that it generates profits faster than other investments.

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CFD Trading in The Future

Like other forms of trading, the future looks bright for CFD trading. With technology progressing so quickly, trading platforms are becoming more sophisticated, less human intervention required and the emotional element of making decisions is dissipating as artificial intelligence takes away a lot of the thinking.

Now you can pick up your phone, day or night, and trade across the globe in assets that you can buy and sell without ever actually owning them. New technologies are coming to market all of the time, phones and other mobile devices can perform more actions with less intervention and CFD brokers fight to remain competitive.

They will no doubt to endeavour to attract you to open an account with features and benefits to improve the experience. It is difficult to predict where things will go next, but it is safe to say that there is still much growth in this speculative form of trading that is already proving so popular with so many.

Meet The Author
Ben Morratt
Ben Morratt
Portfolio Manager

Ben’s contributions as a freelancer to the site since 2013 are highly valued. He has a real talent particularly within short-term speculation, making many successful trades on the directions of the global financial markets. Learn more.

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