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Newcomers get confused by last price, bid price or ask price. Important: All definitions come into play when buying or selling a share.

  •     With the ask price, a shareholder signals at which price he would sell his shares.
  •     With the bid price, an interested party indicates what price he would pay for a share certificate
  •     When trading in shares, buyer and seller agree on the last price so designated

Independently of this, trading in shares requires that sellers want to sell their share certificates at the price called.

Why are shares bought?

Buyers expect the issuing company to be profitable, to pay dividends regularly and to be successful in every respect. The right to have a say at the annual general meeting mentioned above is only exercised by a few shareholders.

Shares are purchased by buyers with a long investment horizon. They build on the long-term good development of the company, which causes the share price to rise. Share certificates of companies are usually held for 10 to 15 years and only then sold. However, investing capital in a single share involves a comparatively large risk, which is why the trend is increasingly towards share indices.

cfd trade

What is a contract for difference?

The Contract for Difference or Contract for Difference is abbreviated as CFD in the financial world. It is a derivative financial instrument that derives its performance from an underlying asset.

By purchasing a contract for difference, you participate, for example, in the performance of a share without owning it yourself.

CFDs have their origins in investment banking and were developed in the 1980s by the major Swiss bank USB. CFDs at https://exnesslatam.com/forex-trading/ enabled market participants to avoid the state stamp duty of 0.5 % on the value of each share transaction. The over-the-counter trading of contracts for difference still enables legal tax avoidance today.

Notice!

As products traded over the counter, contracts for difference are still neither standardised nor particularly regulated.
The main difference between CFD and share trading

When you buy a share, you become a shareholder and subscribe as a shareholder with all rights and obligations. When buying a CFD with the underlying share, you do not become a shareholder. You merely acquire a right to the performance of the underlying.

While shares are always purchased at full price, with the contract for difference you only have to invest a fraction of the trade value. Thanks to the leverage, the margin required is only a small part of the underlying asset. Profit and loss, however, are based on the full trading value.

Both approaches have advantages, as will be seen below:

  •     With the help of contracts for difference, a wide variety of underlyings can be used to generate profits.
  •     When opting for shares, your entire capital flows into company investments
  •     By trading leveraged CFDs you diversify your capital in the best possible way and increase the prospect of profits
  •     The purchase of shares involves a one-off expense, after which there are no further significant costs
  •     With both approaches, the risk is limited to the expenditure at the beginning. Most CFD brokers have abolished the margin requirement
  •     With contracts for difference you profit from upward and downward trends if you make the right decision
  •     Shares only allow you to participate in upward trends, but they offer the prospect of dividends.
  •     The best trading times for CFDs and shares are largely identical for market participants. It makes no sense for German players to trade CFDs outside the trading hours for equities.
  •     Shareholder privileges are irrelevant for most traders, so voting rights in equities are not an advantage over CFD traders
  •     CFDs are suitable for day trading and medium-term trading. Shares yield the most attractive profits after a long holding period