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Risk Warning
Contract For Difference (CFDs) were originally developed in the early 1990s in London. They are based on equity swaps (an exchange of cash flows between two parties that allows each party to diversify its income, while still holding its original assets), but they had the additional benefit of being traded on margin and being exempt of UK stamp duty.
CFDs were initially used by hedge-funds and institutional investors to hedge their exposure to stocks on the London Stock Exchange in a cost effective way. In the late 1990s, CFDs were first introduced to retail investors as an OTC (over-the-counter: not listed or available on an officially recognised stock exchange but traded in direct negotiation between buyers and sellers) product and were popularised by a number of UK CFD companies. Investors quickly realised that the real benefit of trading CFDs was not the tax exemption but the ability to trade on leverage on any underlying instrument. This was the start of the growth phase in the use of CFDs.
Contract For Difference providers quickly responded and expanded their offering from London Stock Exchange (LSE) shares to include most global stock exchanges, indexes, commodities, treasuries and currencies.
For any more questions you have or to find out about opening an Online CFD trading account please call us on 020 7529 6390.
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Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily a guide to future performance. Trading in these markets is generally considered to be suitable only for the more experienced investor as it carries a high degree of risk. An investor may not receive back the amount of their original investment and in certain circumstances may be liable for a sum that is greater than their original investment. If in any doubt, please seek independent financial advice.