Contract for difference CFDsoriginated in 1990 in London, England, an equity swap is usually a type of financial product developed by clients with leveraged demand, for investors he does not directly hold the stock itself and does not need to actually buy or sell the financial instruments such as stocks to achieve the same assets to avoid high transaction stamp duty and capital tax, for investment in overseas assets, through equity swap can reduce tax rates and avoid various possible holding inheritance issues, or legal restrictions.
CFDs were originally used by hedge funds and institutional investors to improve the utilization of capital and maximize profits on the stock market, particularly in London Stock Exchange investment firms where they only needed tiny levers to avoid tax issues such as stamp duty on UK stocks
CFDs are very common for hedge funds or other asset management experience to trade cfDs as physical stocks, and CFDs are often used to hedge the risk of stock fluctuations in the short term if physical delivery stocks are to be expensive in the UK
CFDs were extended to retail retail clients in the 1990s, and after that several UK trading companies grew rapidly thanks to the development of the online stock trading platform APP, he was able to timely price the underlying entity assets, the first CFD trading volume company was GNI (Gerrard and National Intercommodities), later MF Global Soon after, IG Group and CMC Group also added CFDs and became popular after the 2000s.
In 2001, several CFD makers learned that cfDs as a whole could have the same impact on the economy, and spread trading was considered to be based on capital gains in the UK
Most CFD market makers track actual stocks and hedge risk through traders or established trading procedures. CfD makers then began to expand overseas
Initially, IG Group and CMC Market Group began trading CFDs in Australia in July 2002, and in many countries have since expanded CFDs transactions in Australia, Austria, Canada, Cyprus, France, Germany, Ireland, Israel, Italy, Japan, the Netherlands, Luxembourg, Norway, Poland, Portugal, Romania, Russia, Singapore, the United Kingdom and New Zealand. They are also not allowed in many other countries – most notably in the United States, where the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) prohibit CFDs from listing on regulated exchanges because of their high-risk nature. The Hong Kong Securities and Futures Commission completely prohibits CFD trading. However, Hong Kong residents can trade CFDs through overseas brokers.
The mechanism for how CFD CFDs are traded
When an investor places an order on an APP to invest in a designated asset , the trading platform will hold the corresponding amount of stock based on the computer or trader’s risk , simply by agreeing with the investor to hold it on behalf of the trading platform , which promises to liquidate the asset at market price and return 100% of its asset value when the client liquidates his assets .
CFD pros and cons
- Low transaction fees
- Exemption from complex tax rates
- Easy to open an account
- Bank card deposit and withdrawal
- Indirect shareholder/indirect shareholding
- Spread problem
- Legal Issues
CFD is a kind of securities trading mode which holds stocks on behalf of brokers, and the broker replaces the client as the direct investor
When the costs and obligations of holding shares directly outsceptipl the profits, investors can bypass complex tax rates and legal issues through cfDs and waive those fees and obligations through brokers.