CFDs vs. Margin Lending?

[jono1887]

What are the differences between trading CFDs and Margin Lending? I know that both of them allow you to leverage, and the interest on margin loans are tax deductible. But in what situations would you use one over the other?

What are the pros and cons of them??

 

[Krusty the Klown]

Re: CFD's v. Margin Lending

That's a big question.

The biggest difference is that with margin lending you actually own the stocks that you buy. Margin lending is not available for anything except company shares and managed funds. A margin loan is like a line of credit loan.

With a CFD you are entering in to a contract for price difference, only, on the underlying financial instrument. So you don't actually own anything. You can still receive a portion of dividends, but not franking credits. If you go short on a stock and hold overnight if dividends are paid, you have to pay the dividend out of your trading account.

CFD's tend to carry greater leverage, as you can have up to 99% leverage for index positions. Margin loans tend to top out at 80% LVR for margin calls.
The greater the leverage the greater potiential for losses.

To me, it seems CFD's are more suited to short term trading, and margin lending for longer term buy and hold investing, but that's just my humble opinion.

 

[skc]

Re: CFD's v. Margin Lending

CFD and margin loans are completely different animals.

Different leverage ratio
Different way of calculating interest
Different instruments all together
Different loan security requirement

One is definitely not a substitute to the other...

 

[lasty]

Re: CFD's v. Margin Lending

What are the differences between trading CFDs and Margin Lending? I know that both of them allow you to leverage, and the interest on margin loans are tax deductible. But in what situations would you use one over the other?

What are the pros and cons of them??

The benefits of CFD's is they are easier to short sell.
CFD's do have a better risk management tool
Lower brokerage.
CFD's are better for short term punting.

Margin lending is better for those who look at a longer term approach.
Franking credits.
Margin lending can be lethal if no planned stop loss.

 

[Sir Osisofliver]

Re: CFD's v. Margin Lending

That's a big question.

The biggest difference is that with margin lending you actually own the stocks that you buy. Margin lending is not available for anything except company shares and managed funds. A margin loan is like a line of credit loan.

With a CFD you are entering in to a contract for price difference, only, on the underlying financial instrument. So you don't actually own anything. You can still receive a portion of dividends, but not franking credits. If you go short on a stock and hold overnight if dividends are paid, you have to pay the dividend out of your trading account.

CFD's tend to carry greater leverage, as you can have up to 99% leverage for index positions. Margin loans tend to top out at 80% LVR for margin calls.
The greater the leverage the greater potiential for losses.

To me, it seems CFD's are more suited to short term trading, and margin lending for longer term buy and hold investing, but that's just my humble opinion.

I hate to correct what overall is such a great post Krusty, but the big I've highlighted.. Some M/L products allow you to do covered call options and most will allow you to do warrant products as well (because with a warrant you get the franking credits and dividend).

Sorry Just my inner Pedant


Cheers

Sir O

 

[Sean K]

Re: CFD's v. Margin Lending

I hate to correct what overall is such a great post Krusty, but the big I've highlighted..

I've used excess equity in my Margin Lending account to buy CFDs. LOL

He did say it was like a line of credit...

 

[shag]

Re: CFDs vs Margin Lending?

i want one of those storm type margin loans, morgage my only dwelling to get margin loan, buy some cfd's maybe with margin loan dosh, and if it goes wrong, blame the bank.
isnt that how it works....
u either make millions, or we all end up paying fees for yrs to feed the banks and other hangers on for dud loans to seemingly greedy or naive people.
the same happened in nz re property, bluechip, fools blinded by greed or easily led.
a film's quote comes to mind about fools, dosh and retention of such.....

 

[Krusty the Klown]

Re: CFD's v. Margin Lending

I hate to correct what overall is such a great post Krusty, but the big I've highlighted.. Some M/L products allow you to do covered call options and most will allow you to do warrant products as well (because with a warrant you get the franking credits and dividend).

Sorry Just my inner Pedant


Cheers

Sir O

No problems Sir O, you know after I posted it, I thought "Hmmm... I should really phrase that better...."

I'll get my act together next time.