What is CFD?
Contract for Difference (CFD) were originally invented in 1970s, and became the relatively main trading method in 2000. CFD appeared as a type of swap transaction and was mainly used for trading between banks and institutional traders in 1980s. CFDs officially started in overseas retail markets started in 1999, and in early 20 century, the UK stock exchange started providing their offer for CFD trading.
The CFD was initially used by institutional traders for avoiding bond risks; CFD were introduced to retail traders later on and quickly popularized for global retail investors.
More retail traders use CFD as a part of the trading combination or a substitute for stock and barter trade. The investors using the CFD for trading comprise short-term traders who trade frequently and those long-term investors who find a more flexible trade tool for replacing the financing stock trading.
The CFD reflects the price change of the stocks or indexes and provide profits or loss cause by the price fluctuation without practically owning the stock or index futures. The CFD use margin trading method; which is equivalent to the barter trade of stocks, the profit or loss is depend on buying and selling prices. Compared with the traditional barter trade of stocks, CFD has more benefit.
The enterprise actions which are not supported by the CFD are as follows: rights issue, warrant issue, interest in shares, scrip dividend, ex-right, ex-dividend and etc. The actions of all the stock corresponding enterprises are not supported by the CFD.