CFD means difference contract. These contracts are opened to use in different types for last years and very simple. These are simply, instruments to buy or sell stocks, comoditis etc. on margin rates. Today’s form of CFD transactions of stocks had started on 1990’s. These are developed to have an openness against the market with using high leverage to protection fund clients by stock brookers. CFD’s are the thing which customers want with not paying stamp duty.

This stayed as main market for CFDs in last ten years. Then, knowledge of CFDs came forward with developing technology in the end of the 1990s. After that, customers had the chance of doing speculation on increasing volatility of stocks. Novadays CFDS, can be used not only on stocks but also on different markets. They are opened for not only professionals but also individual users.

According to last reports, it is predicted that, 25% of English stock market are CFD. CFDs are also started in other countries like Australia, Canada and Singapoure. It is necessary to have beginning margin of the product to trade CFDs on the account. For instance; if %1 margin is necessary for Euro, it is enough to have %1 of value of commodity. According to this, it is enough to have 1000 Euro to buy 100,000 worth Euro .

Unlike buying a stock in physical, when you do trading with CFD, you can’t have the stock in physical. You trade on the relevant market and the gap between open price and close price determines the amount loss or profit when you close the transaction. You can’t have vote right at the company and you are subject to law of companies. But you can’t have dividends.

There are a number of different financial products that have been used in the past to speculate on financial markets. These range from trading in physical shares either direct or via margin lending, to using derivatives such as futures, options or covered warrants. A number of brokers have been actively promoting CFDs as alternatives to all of these products.

Although no firm figures are available as trading is off-exchange, it is estimated that CFD related hedging accounts for somewhere between 20% and 40% the volume on the London Stock Exchange (LSE). A number of people in the industry back the view that a third of all LSE volume is CFD related. The LSE does not monitor the numbers but the original 25% estimate as quoted by many people, appears to have come from a LSE spokesperson.

The CFD market most resembles the futures and options market, the major differences being:
There is no expiry date, so no price decay;
Trading is done off-exchange with CFD brokers or market makers (note exception with ASX discussed below);
CFD contract is normally one to one with the underlying instrument;
CFDs are not available to US residents;
Minimum contract sizes are small, so it’s possible to buy one share CFD, low entry threshold;

Easy to create new instruments, not restricted to exchange definitions or jurisdictional boundaries, very wide selection of underlying instruments can be traded.