What a shares CFD is

The share, the exchange and the contract 

A share is a unit of ownership in a company. When the company is listed, its shares change hands on an exchange at a price discovered there continuously, by the buyers and sellers meeting in that one venue. A shares CFD is a second object built on top of that price. It is a contract between a client and a broker, opened at the exchange price of one named company's shares and settled against the exchange price of the same shares when it is closed.

The exchange does the discovering and the contract does the following, and the arrangement runs one way only. A provider derives its quote from the price at the listing venue, which is why the two move together. Opening, holding or closing the contract does nothing to the exchange price, because no share is bought or sold in order to create it. Nothing reaches the market at all: the transaction is between the two parties to the contract, and the company is not one of them and holds no record of it.

The venue matters more here than anywhere else in this module. A currency pair has no home exchange. An index is a calculation republished by its provider. A share has one primary listing, and that listing brings a regulator, a currency, a settlement convention and a trading day with it. All four attach to the contract written on the share, which is the reason a shares CFD behaves less like the other classes in this module than they behave like each other.

Dividends and corporate actions, as they reach a position 

Lesson three set out what a CFD holder does not receive, and why a dividend adjustment exists at all. On a single company that mechanism is worth following in numbers, because a dividend is the one routine event that changes a position's value for a reason that is not a market movement.

The sequence is fixed and public. A board declares a dividend and sets a record date; the register is read on that date to decide who is paid; and the exchange marks the shares ex-dividend shortly beforehand. From the opening of trading on the ex-dividend date, a buyer of the share no longer receives the pending payment, so the price typically opens lower by approximately the dividend per share. Nothing has happened to the business overnight. Value has left the share and is on its way to the holders of record.

A contract tracks the lower price, so a long position records a fall and a short position an equivalent rise, neither of which reflects anything the company did. The adjustment offsets exactly that: the long side is credited, and the short side debited, an amount corresponding to the dividend. It is not income and no issuer pays it. It exists so that a price change caused by the dividend rather than by the market does not land on one side of a contract by accident.

Corporate actions other than dividends are handled on the same principle, by adjusting the position so that its value immediately before and immediately after the event is unchanged. A split that replaces each share with several multiplies the contract's quantity and divides its opening price by the same factor. A consolidation does the reverse. Rights issues, spin-offs and mergers are adjusted case by case against the published terms of the action. And where the reference itself ends, because the company has been acquired for cash or removed from the exchange, the contract cannot outlive it: positions are closed under the provider's stated rules at a price it determines, on whatever notice the event allows.

Through all of it the contract holder stays a stranger to the company. There is no vote at a general meeting, no entitlement to subscribe to a rights issue as a shareholder, no annual report and no place on the register. The adjustment machinery reproduces the economics of an event and never the rights attached to it.

The contract stops when the exchange stops 

An index CFD can be priced outside the cash session, as lesson six described, because the index has a continuously traded futures market to reference. A single company's shares have no equivalent. Once the exchange hosting the listing closes, price discovery for those shares stops and nothing is left for a contract to track. Shares CFDs therefore quote only inside their underlying exchange's hours, and often a slightly narrower window than that, because providers commonly stand aside from the opening and closing auctions, where a price is set by a batch process rather than by continuous trading.

The consequence is that a shares CFD is shut for most of the day and all of the weekend while the world carries on. Results, guidance, regulatory decisions and changes of management are frequently published while the exchange is closed, precisely so that the market has time to read them before trading resumes. The price at the next open reflects all of it at once, and the first print can sit a long way from the previous close, with no traded prices in between.

Trading involves risk. You could lose more than your deposit.

Exchange holidays, half sessions and seasonal clock changes move the window as well, and the window belongs to the exchange rather than to a reader's calendar. For readers in the GCC that mismatch is structural rather than occasional: the working week runs Sunday to Thursday while the major listing venues run Monday to Friday, so a Sunday is a working day on which every share market is shut, and a Friday is a weekend day on which all of them are open.

What moves one company's price 

A single share price carries three layers of information at once, and separating them is most of what reading one carefully consists of.

1. The company itself. Reported results and how they compare with what the market expected, revenue and margin trends, cash generation and debt, guidance about future periods, capital decisions such as dividend policy, buybacks or an issue of new shares that dilutes existing holders, changes of management, contracts won and lost, litigation, and regulatory decisions aimed at that business.
2. The sector around it. Results from one company are read across to competitors that have not reported yet, input costs move whole industries together, and a regulatory change usually lands on every firm in a category rather than on one of them.
3. The market as a whole. Interest rates change the rate at which future earnings are discounted into a value today, which is why shares with nothing else in common move together on a central bank decision. Broad shifts in risk appetite do the same. So does the currency of the listing, which enters the result of any position accounted in a different one.

Practitioners conventionally divide a share's movement into a company-specific part and a market-wide part, and they disagree about both the proportions and how stable those proportions are, because every measure of the split is calculated from past prices and describes the period it was measured over rather than the one that follows it.

What does not vary is the concentration. An index spreads its exposure across constituents, so one company's bad afternoon is diluted by everything else in the basket. A shares CFD references one company, one balance sheet and one management team, and an event specific to that company has nothing to average against. That is a structural difference between the two contracts rather than a ranking of them.

Where the per-instrument detail lives 

Everything above is mechanism, and mechanism is common to every listing. The tradeable details are not. The exchange an instrument is referenced from, the size of one contract, the way its cost is charged and the hours it quotes are all set per instrument, and where an FX cost is commonly carried in the spread alone, a shares CFD commonly carries an explicit commission alongside a spread that follows the exchange's own. YAL lists 900+ shares CFDs on MetaTrader 5, with the per-instrument detail on the shares market pages and the schedule on the answer on trading hours.