CFDs and Warrants : seemingly similar products that don’t offer the same trading possibilities

As the leading financial derivatives of the early 2000s, warrants have been in strong competition with CFDs for over a decade.

When it comes to speculating on the financial markets with high leverage, derivatives seem to be the way to go. However, the plethora of products available to traders today can make your head spin ! Many investors hesitate between CFDs and Warrants to get started.

Here is a comprehensive summary of the information you need to determine which derivative to choose between CFDs and warrants, depending on your trading strategy.  

Contracts for Difference (CFD)

CFDs are relatively new financial derivatives products.  These "contracts for difference" allow traders to speculate on the rise and fall of a given financial instrument. CFDs follow the value of an underlying financial asset, which can be a stock, a stock index, or a commodity among others. Thus, CFDs are contracts that allow investors to trade the difference in value of a financial instrument between the signing of the contract and its closing. In fact, when investing in a CFD, the trader does not own the underlying asset. CFDs therefore have no intrinsic value, only a virtual value that is identical at all times to that of the underlying asset.

In addition, these financial products are particularly popular with traders, as they allow the use of high leverage, which can multiply the gains generated on each of an investor's positions.  


Warrants are also financial derivatives. Older than CFDs, they became very popular in the financial world in the early 2000s.  Warrants have the particularity of being optional products: they are securities listed on the stock exchange that allow their holder to buy an underlying instrument at a predetermined date and price. They are thus comparable to option warrants, allowing traders to invest in financial assets with a reasonable amount of capital. As with CFDs, warrants cover a large number of underlyings, such as stocks, indices, commodities, currencies, etc. In addition, they also provide access to a high leverage effect.

CFD vs warrants

Despite their many similarities, CFDs and Warrants are different in many ways and do not, in fact, fit in with the same investment strategies.

These two financial products differ in the following ways :

  • Ability to short. CFDs allow traders to speculate both long and short on all types of underlying assets. Warrants, on the other hand, do not allow short selling of a financial instrument that the investor does not own.
  • Trading hours. CFDs can generally be traded 24 hours a day, whereas warrants, as listed securities, can only be bought and sold during the opening hours of the market to which they are attached.
  • Time limit. CFDs are not subject to a time limit, so traders can close their investments whenever they wish. Warrants, on the other hand, have a maturity date, which corresponds to the life of the product; traders must therefore close their investments at the end of this 1 to 5 year period.

CFDs and warrants are similar in many ways. They share the same primary function, namely to allow investors to speculate on underlying financial instruments, with a leverage effect. However, their nature differs and they do not offer the same investment opportunities to traders, who need to choose between one or the other according to their strategies and profiles.