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By: Marc Dixon

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Monday, 20-Jun-2011 09:47 Email | Share | | Bookmark
A Brief Explanation On CFDs

CFDs is short for contracts for difference. Presently, they are one of the most popular trading instruments in the market today. By definition CFDs are contracts made between two individuals or parties that speculate on the possible movements of a specific asset price. CFDs are the agreement of two parties to exchange the value difference of a specific commodity share, currency or index. The agreement or contract covers the exact moment when the contract was made and the time that is was closed.

The payout for CFDs is equivalent to the amount of the price difference of the particular asset agreed upon at the time the CFDs were opened up to the time they are closed. The buyers will receive payment from the seller if the asset price increases. CFDs have no restrictions on their entry price or exit price. There is also no time limit on when the agreement can be made. There is also no limit on buying or selling first. Trading of CFDs is usually done on leverage. This is to provide traders with additional trading power, business opportunities and flexibility. CFDs give traders the opportunity to capitalize on the increase or decrease of prices. They are also effective tools that can be used for speculating on the market.

CFDs were first created in London in the early part of the 1990s. The concept behind the CFDs was the equity swaps. CFDs were conceptualized by Jon Wood and Brian Keelan. CFDs had the advantage of being exempted from taxes and they can also be traded on margin. Institutional traders first used the CFDs as a hedge to their stocks exposure at a very convenient cost to them.

In the later part of the 1990s, the CFDs began to be used by retail traders. They became popular through several companies in the UK that had online trading programs. Through the online trading programs, traders were constantly updated on the live prices. Traders were also able to witness the trading online in real time.

In the year 2000, traders began to realise that CFDs were capable of being traded on leverage for any underlying trading instrument. This signalled the rise of the popularity of CFDs. Providers of CFDs cashed in on their rising popularity and began to expand their products aside from the London Stock Exchange shares that was originally conceptualised in the 90s. CFD products began to include global stocks, indices, bonds, currencies and commodities. At that time, the most popular CFDs were those on global trading indices such as NASDAQ, Dow Jones, DAX, CAC, FTSE and S&P 500.

Providers of CFDs also began to see a similarity between CFDs and financial spread betting in terms of their effect on the economy. The CFDs were introduced to the Australian market in 2002. Since then, the CFD Provider have been introduced and popularized in many global markets all over the world.

Marc Dixon is a freelance writer who writes about CFD Provider and an extensive array of services to keep our clients informed and educated, Also efforts to extend and improve our services to you for best Forex trading features. Also read my Articles at Marc Dixon Articles and my Bookmarks at Marc Dixon Bookmarks.


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