CFD Trading or Margin Lending – What Are the Key Differences

Understanding CFDs

This is known as a tradable instrument, which simulates the fluctuations of the asset underlying it. Whenever you make use of such an opportunity, there may be gains or losses according to the fluctuations of the underlying asset even if the investor never actually owes that asset. In most cases, such an investment would be a partnership or an agreement between a broker and the investor. This kind of trading is effecting significant changes in the financial instruments industry and it is well known that CFD is one of the fastest growing investment products available, although it may not be available in some countries. Most investors dealing in this kind of opportunity are fully aware of the fact that the growth where CFDs are concerned can be exceptionally rapid and one of the benefits is the fact that the investor does not require the assistance of a middleman in order to make an actual investment. It is quite possible for private investors to open a CFD account and doing so is simple and very quick to accomplish. They can commence almost immediately and any profits gained could be in the investor’s account on the same day.

Understanding margin lending

This kind of product certainly has many benefits of its own. A specific investment portfolio could have both margin lending and CFDs incorporated in that agreement if this is what the investor desires. When speaking about a margin or also an investment loan, this is understood to be a form of gearing that allows the investor to obtain finance, which could be invested in certain approved managed funds or shares, but the investor will be responsible for investing their cash. Other investment shares or managed funds may also be accepted as security. Any investor looking into the opportunities provided by CFDs and margin lending will quickly see that each of these opportunities have certain benefits and also certain negative aspects related to them. For those who are experienced in this matter, CFDs have been found to be significantly more beneficial especially when it comes to trading over the short-term. For those investors who are interested in long-term opportunities, margin lending seems to be the better option. Margin lending also provides investors with some additional tax benefits.

How do they differ?

They can be no doubt that for the investor, both of these investment opportunities have definite advantages and disadvantages. In most cases, it will be beneficial to speak with professional advisors, especially those associated with the CMC markets because these people know exactly what needs to be done in order to maximize profits. There are certain instances where a combination of these investment opportunities could be used for optimal results. Something many people find convenient regarding CFDs is the fact that it could be done online. Every investor will have his or her own portfolio, which is updated throughout the day while margin lending will only provide the investor with a one-time report at the end of the day’s trading. Therefore, CFDs certainly provide an investor with better control over their investment and they may have advanced warning should the investment suddenly loose value.


Author: Kar

Dr. Kar works in the interface of digital transformation and data science. Professionally a professor in one of the top B-Schools of Asia and an alumni of XLRI, he has extensive experience in teaching, training, consultancy and research in reputed institutes. He is a regular contributor of Business Fundas and a frequent author in research platforms. He is widely cited as a researcher. Note: The articles authored in this blog are his personal views and does not reflect that of his affiliations.