Editing Contract for difference (section)

===Asset management and synthetic prime brokerage===
CFDs were initially used by [[hedge fund]]s and institutional traders to cost-effectively gain an exposure to stocks on the [[London Stock Exchange]] (LSE), partly because they required only a small margin but also, since no physical shares changed hands, they also avoided [[stamp duty in the United Kingdom]]—trades by the prime broker for its own account, for hedging purposes, are exempt from [[stamp duty]].<ref>{{cite web | title=Derivatives: introduction to contracts for difference| website=GOV.UK|publisher=HM Revenue & Customs| date=10 May 2024| url=https://www.gov.uk/hmrc-internal-manuals/stamp-taxes-shares-manual/stsm118040|id=STSM118040}}</ref>

It remains common for hedge funds and other asset managers to use CFDs as an alternative to physical holdings (or physical [[Short-selling|short selling]]) for UK-listed equities, with similar risk and leverage profiles. A hedge fund's [[prime broker]] will act as the counterparty to CFD, and will often [[hedge (finance)|hedge]] its own risk under the CFD (or its net risk under all CFDs held by its clients, long and short) by trading physical shares on the exchange.

Institutional traders started to use CFDs to hedge stock exposure and avoid taxes. Several firms began marketing CFDs to retail traders in the late 1990s, stressing their leverage and tax-free status in the UK. A number of service providers expanded their products beyond the [[London Stock Exchange]] to include global stocks, commodities, bonds, and currencies. Index CFDs, which were based on key global indexes including the [[Dow Jones]], [[S&P 500]], [[FTSE 100 Index|FTSE]], and [[DAX]], immediately gained popularity.<ref name=":0"/>