Hi, I'm new to CFDs so maybe someone else can answer your questions better but as far as I'm aware, see my answers below:
1) what is the possible impact of the rise in popularity of CFDs on actual shares trading and the derivatives market?
Probably increased volatility day to day. Also probably more extreme ranges in prices in the long term. This is due to the increased leverage.
2) when you buy a contract for say 1,000 XYZ shares, are those shares actually bought by the provider? does it depend on what model the provider uses?
Yes I believe they usually are. Or they are bought by some other third party, for example I believe for ASX CFDs through Commsec the Sydney Futures Exchange acts as the seller or buyer.
