Contracts for difference are increasingly being used as a means of avoiding stamp duty liability on share transactions, according to a report from think-tank Tabb Group, with as many as a half of UK equities in 2010 being traded indirectly via contracts for difference.

A new research reported conducted by Tabb Group has shown a trend towards CFD trading rather than traditional equity trading, as a result of increased tax efficiency and the margined nature of CFD trading.

The report examined data from 2010, looking at the total volume of trades and the proportion of those which were conducted through CFDs rather than on the stock markets directly, highlighting a significant movement from traditional share dealing towards CFDs.

Contracts for difference are traded on the basis of the asset, rather than trading in the asset, thereby affording a saving on stamp duty for UK traders.  As a result, the report found that as much as 50% of equity trades in the UK over the last twelve months were conducted through CFDs, which have increasingly become the investment vehicle of choice for professional investment funds.

The total value of shares trades through CFDs came out at £1.1tn, when stripping for duplicate reprinted transactions.

The savings for trading CFDs as opposed to cash equities can amount to 0.5% of total transaction value.