CFD Trading Vs Margin Lending
Before CFDs entered the Australian market traders looked for leverage elsewhere. Traditionally people who wanted leverage, on equities in particular, would use margin lending. Margin lending at the time was brilliant as it allowed people to better utilise capital by providing leverage but that was about the only advantage over share trading otherwise everything else was very similar!
CFDs provide far greater leverage. Typically in the ASX market for example you can get margins from 3% up. Margin lenders tend to have margins around 30%. Far better use of capital in CFDs. Also CFDs offer margin on a much larger range of equities unlike margin lenders.
Margin lending does not typically allow short selling meaning that they are very similar to shares. You can only really profit in a rising market where as CFDs enable you to profit in all market conditions.
Cost Of Trading
Margin lending trading prices were similar to shares if not more expensive because of the fact they were providing traders with leverage. Like share trading margin lending attracts 10% GST charge and generally are not allowed to be used in Self Managed Super funds unlike CFDs.
CFDs being cash settled are a main advantage over Margin Lending products and Share trading. Margin lending is the same as share trading where T+3 settlement periods are applicable which slows trading and availability of capital. CFDs enable you to enter and exit trades because settlement is instantaneous. CFDs also enable traders to use unrealised profits to enter new positions where as margin lending is the same as shares and positions need to be close out to use profits for new trades. This has Capital Gains Tax implications and is very costly.
Traditionally Margin lending is one of the most strenuous account setups of the lot. I found the time it took and credit checks etc just took weeks. CFD accounts take a matter of a day or two and are a lot more flexible.
Don’t forget the added benefit of products CFDs enable you to trade over margin lending such as FX, Indices and commodities. Let alone the global markets CFDs cover.
The best part of it all is that whether you trade equities through CFDs, Shares or Margin lending you are trading the same thing yet CFDs just carry countless benefits.