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Shares are pieces of a company. In other words, every share represents ownership in a company. For instance if you own 1 share in a company that has issued 1,000 shares then you own 0.1 percent of that company. Likewise if you own 1 share in a company that has issued 1,000,000 shares, you own 0.0001 percent of that company.

Each company is free to determine how many shares it will issue, and it is only the company that can make this decision. Traders or other market participants cannot create their own shares. They can only trade those shares that the company has issued.

When you own a share you are entitled to share in the successes and failures of a company, the profits and the losses. When a company makes money the value of that company's shares generally goes up. When a company loses money, the value of that company's shares generally goes down. Of course traders speculating on the share price can cause the price to move up and down on a short-term basis, but company performance is typically the long-term driver of price movement.

Traders buy and sell shares to take advantage of the price movement of the share. If you buy a share and the price of that share goes up then you make money. For example, if you buy a share of Google (GOOG:xnas) for $400 and sell it after the price has risen to $500, you make $100 ($500 - $400 = $100).

If you sell a share short (which means you borrow the share from your dealer and sell it on the open market), and the price of that share goes down, you make money. For example, if you borrow a share of Google from your dealer and sell it on the open market for $600, buy it back for $500 and then return it to your dealer, you make $100 ($600 - $500 = $100).

The following table illustrates what will happen to the value of your share based on whether you bought or sold the share to enter your trade:

Share prices fluctuate from day to day. Your job as a share trader is to determine which direction you believe the share price is going to move and place your trades accordingly. You will learn more about how to analyse a share and project where the price is going to move in the future in later sections.

Share Traders

Share traders who want to buy or sell a share submit their orders to GET Financial, and GET Financial takes care of the rest. The following outlines the complete process:

1. You submit an order to GET Financial
2. GET Financial submits the order to the appropriate share exchange
3. The exchange fills the order by matching it with another order (or orders)
4. The exchange sends confirmation to GET Financial that the order has been filled
5. GET Financial updates the order in your account

The amazing thing is that all of this takes place in a matter of seconds, sometimes less. Trading platforms by dealers like GET Financial have brought lightning-fast order execution to individual investors like you.

Reuse of Collateral

GET Financial allows up to 60 percent of the collateral invested in certain shares and ETFs (Exchange Traded Funds) to be used for margin trading activities (Forex and CFD trading). For example if you are holding a position in an eligible share with a value of $10,000 you can re-use up to $6,000 of this as collateral for trading Forex and CFDs.

Contracts for difference (CFDs) are similar to shares and share indices - with the added benefit of leverage. CFDs are based on shares and share indices. Whereas shares are actual certificates that show ownership in a company, CFDs are simply contracts between two parties (you and your dealer, in most cases) that designate how much money you will make, or owe, depending on where the price of the underlying share or share index moves.

Whereas there are a limited number of shares available for each company, there are no such limits on CFDs. Companies don't issue CFDs or determine how many are available - traders do. As long as there are traders willing to buy or sell CFDs and dealers or others willing to take the opposite side of the trade, there is virtually no limit to the number of CFDs you can trade on each share or share index.

CFDs and shares are like people and hot-air balloons. A person alone cannot fly. A hot-air balloon, on the other hand, can fly by itself. However, when you put a person inside a hot-air balloon, she can fly with the hot-air balloon. As the balloon floats higher, the person inside the balloon also floats higher. As the balloon floats lower, the person inside the balloon also floats lower.

CFDs and shares work in much the same way. A CFD by itself cannot move up or down in price. A share, on the other hand, can move up or down in price all by itself. However, when you attach a CFD to a share it can move up or down with the price of the share. As the share price moves higher, the value of the CFD also moves. As the share price moves lower, the value of the CFD also moves.

Every CFD has a specific underlying share or share index on which it is based. For instance if you trade a CFD for the Nikkei 225 Index (an index of Japanese shares that trade on the Tokyo Stock Exchange) the performance of your CFD is going to be based on the price performance of the Nikkei 225. If you buy the Nikkei 225 CFD and the price of the Nikkei 225 moves higher then the value of your CFD will also move higher. Conversely if you sell the Nikkei 225 CFD and the price of the Nikkei 225 moves lower then the value of your CFD will also move higher.

The following table illustrates what will happen to the value of your CFDs based on whether you bought or sold the CFD to enter your trade and the price movement of the underlying asset:

CFD values fluctuate from day to day as the price of the underlying asset moves up and down. Your job as a share trader is to determine which direction you believe the underlying asset is going to move so you can place your CFD trades accordingly. You will learn more about how to analyse these underlying assets and project where the price is going to move in the future in later sections.

CFD values fluctuate from day to day as the price of the underlying asset moves up and down. Your job as a share trader is to determine which direction you believe the underlying asset is going to move so you can place your CFD trades accordingly. You will learn more about how to analyse these underlying assets and project where the price is going to move in the future in later sections.

Leverage

CFDs have the added benefit of leverage. Leverage is probably the one characteristic of CFDs that intrigues individual investors the most. Leverage is the ability to convert a small amount of power into a larger amount through the use of a tool. Imagine you are asked to move a large boulder from the spot where it is currently resting. You could certainly try to push and move the boulder with your bare hands, but your job will be much easier if you can use a tool - such as a large pole - that you can place under the boulder to give you some leverage.

The same principle holds true when you are trading CFDs. You can make money by investing just your own money, but you can make much more money if you can use the tool of financial leverage by borrowing money from your dealer.

You can lever, or increase the investing power of, your CFD accounts by using some of your own money to enter a trade and then borrowing the rest from your dealer. For example, you can buy or sell a CFD on some heavily-traded shares and indices using as little as 10 percent of your own money. You can borrow the remaining 90 percent of the purchase price from your dealer.

The leverage you enjoy when trading CFDs is determined by the margin you are required to post for each trade.

Margin

The CFD market is an exciting market because your dealer is willing to lend you money so you increase your profit-generating potential in all of your trades. Before your dealer lets you borrow money, however, you have to show that you have some money to cover any losses you may incur. Margin is the money you set aside with your dealer for safe keeping to prove that you are able to cover your losses.

For example if you buy the Exxon Mobil CFD you will be required to set aside 10 percent of the share price as margin. That means if the share price is $90, you will be required to set aside the equivalent of $9 to prove to your dealer that you can cover losses of at least $9 (a 10% loss) should your trade move against you.

Different CFDs have different margin requirements. CFDs covering shares and indices that are actively traded have lower margin requirements because their high levels of liquidity make it easier to enter and exit your trades quickly - which gives your dealer added confidence he will be able to close out your positions without incurring unexpected losses. CFDs covering shares and indices that are not actively traded have higher margin requirements because their low levels of liquidity make it harder to enter and exit trades quickly.

Many novice CFD traders are often confused into thinking that the money they set aside as margin actually goes toward purchasing shares or indices. It does not. You borrow 100% of the purchase price from your dealer. Your margin only shows your dealer you have money to cover any losses that you may incur.

CFD Financing credit/debit rates

As CFDs are a margined product, you finance the traded value through an overnight credit/debit charge. Consider this as the price you pay for access to the generous flexibility in lending that your dealer provides you when you trade on margin. When you hold a CFD overnight (i.e. you have an open CFD position at close of market, which is 17.00 New York time), your CFD position will be subject to the following credit or debit:

• When you hold a long CFD position overnight you pay interest, meaning that you are subject to a debit calculated on the basis of the relevant Inter-Bank Offer Rate for the currency in which the underlying share is traded (e.g. LIBOR) plus a mark-up (times Actual Days/360 or Actual Days/365).
• When you hold a short CFD position you receive interest, meaning that you receive a credit calculated on the basis of the relevant Inter-Bank Bid Rate for the currency in which the underlying share is traded (e.g. LIBID) minus a mark-down (times Actual Days/360 or Actual Days/365).*

The credit/debit is calculated on the total nominal value of the underlying share(s) at the time the CFD contract is established (whether long or short).

If you open and close a CFD position within one trading day you are not subject to these credits/debits.

CFD Traders

CFD traders who want to buy or sell a CFD also submit their orders to GET Financial, and GET Financial takes care of the rest. With CFDs, however, GET Financial can fulfil your orders in one of two ways - by sending the order to a centralized CFD exchange, or by acting as the counterparty to the trade.

When you submit an order for a CFD that trades on a centralized exchange, GET Financial will handle your order the same way it handles a share order. The following outlines the complete process:

1. You submit an order to GET Financial
2. GET Financial submits the order to the appropriate stock exchange
3. The exchange fills the order by matching it with another order
4. The exchange sends a confirmation to GET Financial that the order has been filled
5. GET Financial updates the order in your account

When you submit an order for a CFD that does not trade on a centralized exchange but will be fulfilled by GET Financial instead, the order process is slightly different. The following outlines the complete process:

1. You submit an order to GET Financial
2. GET Financial fills the order
3. GET Financial updates the order in your account

Regardless of which type of CFD you are buying or selling, the entire process - just as with share trading - happens within a matter of seconds.

Short Selling CFDs

When short selling a CFD directly on an exchange (that GET Financial does not market-make), you will be affected by the rules for the share market in that country. For example when trading Australian CFDs you may experience limitations on the volume of CFDs you can short trade in a single day due to limited borrowing availability in the underlying market.

You can also experience forced closure of a position if your CFDs get recalled. The risk is particularly high if the share becomes hard to borrow due to takeovers, dividends, rights offerings (and other merger and acquisition activities), or due to increased hedge fund selling of the share.