Comparison of CFD and Warrants (Part 3 of 3)

In this section I shall compare CFD issuing firms, CityIndex, IG Markets, CMC Markets, Philip CFD and SaxoBank.


Since I'm going to be trading the Singapore Market only, I will only put up comparisons for the Singapore Market, share CFD's.

I will be setting up a CFD Account with IG and CityIndex next week.

(Note: Sorry, I'm not sure why CMC column overflow to the links side...)

	Philip CFD	Saxo	IG Markets	City Index	Kim Eng CFD	CMC Markets
1 Way Commission (Min/%)	$25, 0.2%(STI Component), 0.3% Others	$17, 0.2%	$25, 0.15%	$10 Flat	$30, 0.3%	$15, 0.15%
Finance Charge (±SIBOR)	5% (promo: 3.5%)	Not shown	2.50%	2.50%	5.00%	3.00%
Margin Rates (Blue Chip-STI Component)	10-20%	10-20%	10-20%	10-20%	10-20%	10-20%
Margin Rates (Penny)	Up to 100%, Most penny stocks are 50% or 75%
Minimum Deposit	$3,000.00	$10,000.00	None	$500.00	$3,000.00	$2,000.00
Interest Paid on deposit?	None	None	None	None	None	None
Remarks	From now till 31/12/10, Free 5 calendar days financing (about $5-6 for a $10000 position)		Most Informative Website	Website is the most crappy	Min. Age 21	Min. Age 21

Comparison of CFD and Warrants (Part 2 of 3)

In this second part, I shall discussthe pros and cons of using either structured warrants or CFD's.
If you notice, I said Warrants are close to, but not a zero sum game. This is because DMM's also earn from the bid/offer spread.
Pros	Cons
Unlimited Gains, Limited Losses	At the mercy of Mr. Market and his wife, Mrs. Designated Market Maker (DMM)
No Finance Charges	Market Makers can, and frequently do, manipulate warrant pricing
Traded just like any security	Has an expiry date, and time value decays as expiry looms
No Margin Calls	Lose immediately due to bid/offer spread (which can be high in times of high Volatility)
	Close, but not exactly a zero sum game- i.e. DMM wins, you lose, DMM lose, you win
CFD
Pros	Cons
Generally lower commissions than normal brokerage firms	Unlimited Losses#
Your incentives and Firm's incentives are the same i.e. Not a zero sum game- you win, they win too	Margin Calls if you are underfunded
At the mercy of Mr. Market only	Immediate closing out of open positions if funds are insufficient
	Finance Charges can add up
	Unlikely to have manipulation(or less effective) of the underlying
#Unlimited Losses occur when your stock price drops to a point where you lose more than your capital (e.g. I buy $10000 worth of SIA, my margin deposit is 10%, or $1000, and SIA drops to, say, $6000. I lose $4000 on this position, and since I originally borrowed $9000, I lose my initial $1000 and another $3000 I borrowed from firm.) Easily overcome with a STOP LOSS
Next up will be a comparison between CFD providing firms.

Comparison of CFD and Warrants (Part 1 of 3)

CFD's as compared to warrants are both financial derivatives which are leveraged. For Warrants the leverage (or effective gearing) is usually in the 4-8x range, i.e. you get exposure to $4-$8 worth of the underlying stock for $1 of your money.
For CFD's, depending on the underlying's "credit-worthiness", your leverage is from 0(very illiquid dubious penny stocks-like Jade) to 10x (If you are a credit worthy customer and betting on Blue Chips like SIA)
Essentially, both give leveraged access to shares, without ownership, dilution, rights, dividends of shares (a price you have to pay for the leverage-or using OPM-other people's money)
I find them very similar, but after doing some research on both, I've found that CFD's in theory do have a leg up against warrants.

I shall do a comparison of CFD vs. Warrant Trading below:

Structured Warrants			CFD
Issued by an investment bank (e.g. DB)			Directly tracks underlying share price
Prices moves up and down in accordance with the share and whether it is call or put
Bid/Offer Price is set by Market Maker			Price is in accordance with Market Pricing
Traded in SGX just like any other security			Traded Over The Counter