CFD Versus Exchange-Traded Funds (ETFs) and Margin Lending
With so many innovations and developments in the financial sector, there are already a wide variety of markets and instruments that can be used in order to speculate on the outcome of assets in the financial market.
Through the years, these had actually been significantly contributing to the movements of the economies all over the world, providing profits and earnings to traders and investors.
Among the common products that can be used for this include the contracts for difference (CFD), exchange-traded funds (ETFs) as well as the margin lending.
We will compare and contrast these three (3) products here for you to better appreciate them.
On the one hand, contract for difference or CFD is generally a contract between parties, which are commonly referred as the buyer and seller.
In the said contract, there is stipulation or indication that the seller will pay the buyer the variance between the current price of the assets and its contract price.
With that, if the difference is negative, it only means to say that the buyer will have to pay the seller.
However, if it is the other way around, then the situation would be is the seller have to pay the buyer.
In understanding CFD, traders need to know its basic and key elements.
Some of these include the fact that it has no expiration date, which means it is not subject to price decay.
Further, trading can be done through off-exchange with the assistance of brokers as well as market makers.
Aside from that, it is also one of the products with the lowest entry threshold to make the position.
On the other hand, however, you might think that it is similar to exchange-traded funds or ETFs, but it is actually way different and distinct.
Some people think that they are just similar because both of them can actually be used for short term speculative transactions.
Aside from that, they are also available with a wide array of underlying assets or products like indices, commodities and the like.
However, ETFs are way more mature products compared to CFDs since the former has been in the market for so long.
However, their main differences are related to the higher costs in trading ETFs as well as the access to the market, which is only through traditional brokers.
Moreover, margin lending is also referred as leverage equities or margin buying, which is very similar to trading physical shares.
However, the capital required for this is lesser like in the CFDs as well as futures and even options.
However, the level of risks here is recognizably higher.
However, it is difficult to short sell in margin lending, which makes contract for difference a more viable method to trade.
Through the years, these had actually been significantly contributing to the movements of the economies all over the world, providing profits and earnings to traders and investors.
Among the common products that can be used for this include the contracts for difference (CFD), exchange-traded funds (ETFs) as well as the margin lending.
We will compare and contrast these three (3) products here for you to better appreciate them.
On the one hand, contract for difference or CFD is generally a contract between parties, which are commonly referred as the buyer and seller.
In the said contract, there is stipulation or indication that the seller will pay the buyer the variance between the current price of the assets and its contract price.
With that, if the difference is negative, it only means to say that the buyer will have to pay the seller.
However, if it is the other way around, then the situation would be is the seller have to pay the buyer.
In understanding CFD, traders need to know its basic and key elements.
Some of these include the fact that it has no expiration date, which means it is not subject to price decay.
Further, trading can be done through off-exchange with the assistance of brokers as well as market makers.
Aside from that, it is also one of the products with the lowest entry threshold to make the position.
On the other hand, however, you might think that it is similar to exchange-traded funds or ETFs, but it is actually way different and distinct.
Some people think that they are just similar because both of them can actually be used for short term speculative transactions.
Aside from that, they are also available with a wide array of underlying assets or products like indices, commodities and the like.
However, ETFs are way more mature products compared to CFDs since the former has been in the market for so long.
However, their main differences are related to the higher costs in trading ETFs as well as the access to the market, which is only through traditional brokers.
Moreover, margin lending is also referred as leverage equities or margin buying, which is very similar to trading physical shares.
However, the capital required for this is lesser like in the CFDs as well as futures and even options.
However, the level of risks here is recognizably higher.
However, it is difficult to short sell in margin lending, which makes contract for difference a more viable method to trade.
Source...