Understand why DLCs are not subject to a margin call and why their holding costs do not accelerate over time.
- Broadcast Date : 30 May 2019
- Video Duration : 00:02:53
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DLC is listed on the exchange, where CFD is traded over the counter. Every investor gets the same price for DLC, while you get different prices from different providers for CFD. DLCs (and structured warrants) are not traded on margin, which makes DLC not subject to a margin call. CFDs on the other hand are traded on margin. Therefore, the loss on DLC is limited to invested capital but for CFD, it can be potentially more than invested capital. DLC and structured warrants are different in terms of holding cost structure. Structured warrants have acceleration of time decay, while the holding cost of DLC does not accelerate with time. There is no implied volatility in the pricing formula of a DLC unlike a structured warrant.
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