History of CFD trading - CFD Early Days

CFD were originally developed in the early 1990s in London. Based on equity swaps, they had the additional benefit of being traded on margin and being exempt of stamp duty. The invention of the CFD is widely credited to Brian Keelan and Jon Wood, both of UBS Warburg.

Initially they were used by hedge funds and institutional investors to hedge (or cover) their exposure to stocks on the London Stock Exchange in a cost-effective way.

In the late 1990s CFD were first introduced to retail (or private) investor. They were popularised by a number of UK companies, whose offerings were typically characterised by innovative on-line trading platforms that make it easy to see live prices and trade in real time. Investors quickly realised that the real benefit of trading CFD was not the stamp duty exemption but the ability to trade on margin on any underlying instrument. In a nick of time many active traders and speculators were attracted to Contracts For Difference as it was a cheap and effective way to speculate on market movements (remember that more buyers and sellers make products more liquid thus bring the cost/commission down). This was the start of the growth phase in the use of CFDs.