Cfds VS Warrants VS Stocks

Cfds VS Warrants VS Stocks


We have an ongoing discussion on differnences on CFDs, Warrants and Stocks . The former 2 are leveraged products where the latter is a non leveage product.
And a dear friend also suggested mr to do a write up on the case.

Leverage products are products that allows you to purchase stocks and equities at fraction of it's total cost

For instance, mr x uses 1000 dollars in warrants or cfds (leverage 5 times) : meaning he can buy up to 5000 dollars 
Of stocks 

Stocks bought with leverage 
= price of warrants x number times leverage
= 1000 x 5= 5000 dollars

Advantages :
This means if the stock rises by 10% 
Mr x would have made 
5000 x 10% = 5500 
Mr x will have made 500 from 1000 dollars investment . So he will have 1500 dollars from selling his warrants .
5500-5000 =500

% profit = (1000-500)/1000 x 100
= 50%

As compared to non leverage , 
Profit is only 10%
1000x 10 % = 100

Profit difference of trading warrants to stocks  = 400 dollars more ! 

Disadvatages  

On the double edge sword ,if the stock drops by 10% 

Warrants and cfds will lose 50% of it's capital . mr x will lose 500 dollars from the 1000 he invested . 
So he will left with 500 dollars if he sold the warrants

If he bought 1000 of shares  he would only lose 100 dollars 

1000 x 10%= 100
1000-100= 900

Thus leveraging is a double edged sword . You can both manigfy your lost and gain .