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.

Forex glossary terms and definitions