• Why Issue Shares
  • Why Invest in Shares
  • Stock Exchange
  • Indices
  • Bull & Bear Markets

Why issue Shares

  • In order to start a new company or expand an existing one you need capital. Companies use various sources for that capital
  • The owners can use their own money
  • The company can borrow from a bank or other people
  • The company can issue and sell shares to investors
  • The advantage of raising capital through shares is that you don’t have to pay back the money or pay interest to the investors

Why Invest in Shares?

  • A share, (also known as a stock or equity) is the smallest unit of ownership in a company. If you own a share of a company’s stock, you are a part owner
  • In the long run shares offer better returns than government or corporate bonds, property and many other types of investment
  • As a shareholder you have the right to vote on who runs the company and other important matters like selling the company
  • By becoming an owner of the company you get a share of the profits this company makes – This is what is known as dividend
  • If the company is profitable the price of its shares will rise and you will make a profit– This is known as capital gain

The Stock Market

  • The stock market or stock exchange is simply the place where shares are traded – meaning bought and sold
  • Shares of listed companies like Apple and IBM are traded in a stock exchange like the New York Stock Exchange
  • Exchanges used to be physical locations where dealers used to meet but modern markets are switching to online trading
  • Although most stocks are traded through an exchange, trading can also take place off exchanges or Over-the-Counter via CFDs

Stock Market Indices

  • Indices summarize the performance of major groups of stocks
  • It is calculated by finding an average price from the prices of the stocks within the group
  • The Dow Jones 30 index is calculated using the closing prices of 30 of the biggest companies in the US stock exchange
  • The UK100 is an average of 100 shares in the UK exchange, Nikkei225 from 225 shares in Japan
  • It represents the general performance of the market, and can be traded as a whole instead of buying each individual share

Bull and Bear Markets

  • The stock market represents a constant battle between buyers and sellers and reflects positive or negative price movements
  • If a company is profitable at the moment and expected to make more profits in the future the price of its share will rise
  • A bull market is a market where the majority of its shares or indices are experiencing a rise in prices
  • If a company is not profitable at the moment and is not expected to make future profits, its share price will drop
  • A bear market is a market where the majority of its shares or indices are experiencing a fall in prices
  • What are CFDs
  • Types of CFDs
  • Advantages of CFDs
  • Disadv. of CFDs
  • Examples on CFDs

What are Contracts For Differences?

  • CFDs are financial derivatives that allow investors to participate in the movement of asset prices without full ownership of the asset
  • CFDs are over the counter financial derivatives that are traded through a dealer network and not through a formal exchange
  • CFDs simulate the value of the underlying asset which can be a currency, a share, a stock market index or a commodity
  • For example when you buy 1 CFD of Microsoft it is like buying 1 share of Microsoft with the only difference that you don’t own the share
  • All profit and loss is paid in cash and is determined by the difference between the purchase price and the selling price of the CFD

 

Comparing XYZ Share & XYZ CFD

Types of CFDs

  • Currencies (eurusd, gbpusd, usdjpy…)
  • Cryptocurrencies (bitcoin, etherium…)
  • Indices like (US500, DAX and Jp225)
  • Equities (Microsoft, Apple, Alibaba…)
  • Commodities (gold, oil, silver, sugar…)

Advantages of CFDs

  • Profit from both rising and falling markets
  • Investors can trade using leverage
  • Fast execution and low transaction costs
  • Small contract sizes
  • No physical delivery

Disadvantages of CFDs

  • CFDs on equities have no voting rights
  • CFD positions cannot be transferred to a different CFD provider or broker
  • Trading with high leverage increases risk
  • Ease of access and low capital requirements can lead to overtrading
  • Swaps are charged

Apple Share vs Apple CFD

Bitcoin in Exchange vs Bitcoin CFD