What are CFDs
The CFD market was developed in the early 90s, mainly to attract exchange speculators with a small capital to shares trading.
Initially, it was impossible to trade stocks without registration of ownership of the given asset. Over time, to make this market more accessible, Contracts For Difference were introduced for trading financial instruments, basic goods, and other various exchange instruments.
CFD is a Contract For the Difference in prices. It’s a financial instrument that’s used to buy shares online. Stock trading is possible due to the price going up or down, which traders use to open “Buy” or “Sell” positions in order to catch the current trend. This type of shares trading is about speculation on the fluctuations in the prices, without the ownership of the securities themselves. Typically the price of the contract for buying shares online is not fixed and changes all the time.
Trading CFD on shares allows traders to place both long and short positions to benefit from a price rise or fall respectively. Securities reflect corporate actions, so traders are entitled to dividend payments when going long, and incur dividend charges when going short.
Online trading is one of the most popular methods of investment. At FxPro, we offer shares trading as CFD on the world’s most valuable companies such as Apple, Coca Cola, and Facebook.
What you need to know about shares
A share is a type of security, that allows an investor to own a part of a company with the right to vote on management issues and to receive profit based on the results of the corporate work.
Shares are divided into two main types.
Ordinary share
Securities give its owner the right to take part in management, as well as to participate in the distribution of dividends. The supreme governing body of an issuer company is the general meeting of shareholders, decisions at which are taken by voting. An owner of one share has one vote at the meeting. Naturally, the holder of 1000 shares will have much more authority than the holder of, for example, 100 papers.
Preferred share
This type of a share guarantees holders an advantage in the distribution of the corporate profits. Dividends are paid first to the holders of preferred shares, and then to the owners of ordinary ones. The same applies to the recovery of losses in an event of bankruptcy. But at the same time, owners of preferred securities are deprived of the right to vote at the shareholder meetings.
Why do companies issue shares
First of all, that is a tool for raising a company’s capital. These are bought with is put straight into the business for instance into the development of its production or restocking its working capital.
Secondly, it is an important reputational component of the corporate image. This adds to its publicity and transparency and attracts potential investors interested in trading. But in order for the securities of a company to be traded on the stock exchange, they must first be listed.
What is a listing
There is a series of procedures that a company needs to go through in order to include its securities into the Stock list. Each stock exchange tries to protect the interests of its investors (those who are interested in stocks trading) and therefore seeks to trade only the strongest issuers. To prove the "quality" of its securities emission, a company has to undergo a series of checks. Requirements might be made to the size of the share capital, its profitability, size of the issue, etc.
Stock price
Each issued share has a so-called nominal value. If a physical document is produced, this value is displayed on the front of the certificate. It is calculated with a simple formula: the total size of the authorized capital of a company is divided by the number of the papers issued. But the nominal value does not reflect the real market quotes during shares trading.
The emission value of a security is determined after it been listed on the stock exchange. Usually, it equals to or is slightly higher than the nominal value. Additionally, depending on the corporate performance, which in turn affects the interest of the investors, the market price will be determined.
Online trading with CFD
Stock trading begins with research into finding a broker.
In most developed countries, equity investments are used by people as tools to protect and increase their own savings, so these investments are widely available to anyone. Some prefer to invest money in stocks of reliable companies that show stable growth and pay dividends. Other investors prefer to buy shares online to get involved in speculation: looking for potentially undervalued securities, buying them cheap and selling them later at a higher price. But both of these investment directions take place in their country and are the driving force of the national economy.
