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CFDs: The Definitive Guide to Contracts for Difference by David James Norman

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5: CFD Regulation

Regulation

Background

CFDs are a classic example of a financial product created in response to a specific regulatory constraint, therefore they need to be understood in the context of their regulatory environment. As off-exchange derivatives, they were originally viewed as institutional trading instruments and attracted limited regulatory oversight due to the professional status of the counterparties trading them.

Regulators believed that if experienced financial institutions were dealing with each other then CFD issuers and their professional counterparties should understand the product risk profile without requiring heavy regulatory control and oversight. However, as CFD trading became more widespread in the 1990s ...

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