The global reach of CFDs

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Updated: 30 August 2020

Contract for difference trading has revolutionized access to markets in many ways and one of the biggest is to be found in the way it is a truly global phenomenon. Not only does the instrument give access to markets around the world, it also means that their different operating times allows an effective form of 24-hour trading.

The huge growth in popularity of CFDs is due to several major factors which set it apart from other more established forms of trading, and what ties most of these together is the theme of flexibility. Global traders have taken to the new way of doing things in such large numbers that it is almost certain that the influence and scope of CFDs will continue on an upward trajectory over the coming years.

Simplicity

The simplicity of trading with CFDs covers many areas, from the advantages that leverage brings through to the ease of opening an account and starting to trade. This has led to a big uptake amongst the public with DIY investors appreciating the ease of use aspects and the lack of regulation and red tape.

Of course, the last financial event to really be classed as ‘global' was a highly negative one, namely the financial banking crisis that began to ripple across the world a decade ago. This led to a widespread disenchantment and even distrust of the advice from industry professionals, so again it is no surprise that the independence that CFDs bring to traders was welcomed by many.

Fast growing

CFDs are one of the fastest growing tools in the financial services industry for many reasons, and unlike some previous boom sectors, their appeal isn't restricted to a small sector of investors or to one region or nation. As the underlying assets used to take positions for CFD trades can be drawn from such a wide range of markets, including shares, indexes, forex and commodities, it is natural that the global nature of these play a part in the way that CFD trades are made.

Although contracts for differences are not available in the US because of legal restrictions from American regulators, other major trading nations such as the UK, Japan, Australia and many others have accepted them. In fact, the large volume of CFD trades is one of the reasons London has overtaken other cities such as New York as the financial location preferred by many hedge funds and financial managers.

UK CFDs

CFDs originated in the United Kingdom, so it is only to be expected that they would continue to have a large base of user support there. In the early days, they were known as ‘SWAP’ contracts until they became more popular around 2001 as more private investors got on board.

CFD transactions in the UK didn’t attract any stamp duty which helped in their rapid growth and so-called ‘retail traders' were attracted to the product through two large spread betting providers, CMC Markets and IG Markets. Today, the wide range of offerings for those interested in CFDs is another reason so many are already trading with the tool. By 2012, there were already 26,000 active CFD traders in the UK, and today the number is thought to be many times higher.

Euro CFDs

In Ireland, a report from The Sunday Business Post based on viewing of confidential briefing documents suggested that at one point an estimated 50% of the entire share trading activity on the Irish Stock Exchange was made up of CFD trades. Across the rest of the European Union, the CFD boom impacted heavily too, especially as companies based anywhere in the European Union could advertise their services across the whole trading bloc.

Germany, France, Italy and Spain were all countries that took advantage of these Euro-wide financial services laws to make the most of CFD trading opportunities. As online trading has always been very popular in Germany, it was a natural home for CFD trades.

CFDs in Australia

CFDs have been available to Australian investors since 2003, three years after they had been introduced in the UK. Rapid uptake saw their growth outstrip the warrants boom in the 1990s and CFDs are now one of the fastest growing financial products to have ever been used in Australian markets.

The popularity of CFDs reached a peak in 2007. Due to their rapid uptake by Australian traders and investors, a number of foreign CFD providers set up branches in Australia. Today, CFDs are big business in Australia, with industry estimates suggest that 49,000 CFD traders were active in Australia in 2015, according to an annual report by research firm Investment Trends Report. Although ASIC regulations are becoming more stringent, the popularity of CFDs in Australia continues to be an important part of the country's trading infrastructure.

Global CFDs

Of course, there are many other countries that have seen a big uptake for CFDS too, with Spain, France and Singapore just three more that have significant numbers of traders and volumes of trades. While the regulatory frameworks remain open to contract for difference across much of the world and the spectrum of markets and scope of assets available to take positions on is so wide, there is little sign of a contraction in the use of CFDs as a modern, flexible, 24-hour global trading environment.