CFD History

The appearance of the CFDs has been tracked to the beginning of the 1990s, in the city of London. They were based on the equity swaps and they could be traded based on margins, while at the same time they were exempt from a UK tax known as stamp duty. The ones that invented the CFD are Jon Wood and Brian Keelan, two guys from USB Warburg.

This new instrument was used at first by institutional traders and by hedge funds which tried to hedge stock exposures from London Stock Exchange, by using something which was cost effective.

CFDs were used by retail traders starting from the end of the 90’s. The ones that made them popular were companies based in UK, which had in offer trading platforms based online, which allowed people to trade real time and to see prices live. GNI was the company which first offered this option but CMC Markets and IG Markets followed soon after, in the year 2000.

Around that time, retail traders began to understand just how beneficial it could be for them to trade CFDs. They understood that it wasn’t just that the CFD was exempt from that stamp tax, but the fact that you could use leverage trading on any type of underlying instrument. At that point CFDs have started to grow quickly and the providers of CFD started to expand, offering not just the shares from the London Stock Exchange but other global stocks, bonds, currencies, indices and commodities. The CFDs which were most popular were the ones which were traded based on the big global indexes, like DAX, Dow Jones, S&P 500, NASDAQ, CAC or FTSE.

In 2001, providers of CFDs started to understand that this instrument’s effect was the same as that of the financial spread betting, though they weren’t taxed the same, so their clients didn’t have to pay taxes when they used this method. Most of the providers of CFDs began to launch operations of financial spread betting at the same time and in some cases the CFD market will mirror the market of financial spread betting and it will have the same products.

These providers of CFDs began to grow and to expand to other markets. In 2002 they went to Australia via IG Markets, which was part of IG Group and via CMC Markets.

For a few years, they were traded only as over the counter, but in 2007 the ASX (Australian Securities Exchange) decided to list the CFDs on key global indices, 8 FX pairs and in the top 50 stocks from Australia. While initially a dozen brokers were offering the CFDs from ASX, right now only five remain.

UK’s FSA, decided to implement a CFD disclosure regime in 2009, in order to avoid that they’re used in cases of insider information. It was the result of a number of cases which were high profile, where the CFD positions were used while trying to avoid using the underlying stock, so that disclosure rules could be avoided.

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