Stocks and shares

Stocks and shares

What is the difference between stocks and shares?

The stock of a company is sold in units called shares. A share is a unit of ownership, or equity, in a company or a corporation. Shares are one of the most traded financial instruments.

If you buy a share of a company, you are buying a piece of the company. When you own more than one share in a company or several companies, these are called stocks, because "stock" generally refers to a portfolio of shares.

On the stock markets, shares are also referred to as equities — if you see the term "equities trading", it is exactly the same as share trading.

The person who buys shares in a company is called a shareholder and has a claim on part of the corporation's assets and earnings.

Companies divide their capital into equal units and sell these on the stock market as a means of raising capital for its expansion, rather than borrowing the funds from the banks.

Stocks and shares are traded in various stock markets all over the world.

How a shareholder benefits

There are two main types of share:

  1. Preferred stock
  2. Common stock

Financial gain

Say you buy 10 shares at $10 each from company A — you have invested $100 into the company. If the value of the company increases by 10%, your shares will also increase by 10%, so they will then be worth $110. If the company value decreases, the value of your shares will also decrease.

Shareholders can earn a profit by reselling the shares at a higher price than they paid for them. For example, if company A's shares rise in value to $12 each then your $100 worth of stock is now worth $120 — if you sell, you make a profit of $20 minus any brokers' fees or taxes you may be liable for.

Shareholders can also make money by holding onto the shares and receiving dividend payouts as the company prospers. This is usually a long-term strategy for investment.

Voting

Voting means the right to influence the decisions of a company. Holders of preferred stock do not usually have the right to vote, but do have a higher claim on assets and earnings above holders of common stock, for example, receiving dividends before them. They also have a higher priority in case of bankruptcy.

Holders of common stock are entitled to vote at shareholders' meetings as well as to receive dividends.

Voting rights give shareholders a say in how the company is run by voting on certain decisions. Not every company offers this option. Voting usually takes place at a company's annual general meeting.

Trading and discussing stocks and shares

Many online brokers offer the option to trade stocks and shares. If you are new to trading, we recommend you to start here:

We also have a dedicated forum on the stock markets:

Looking for a Top Broker? Sign up through Tradimo & get extra benefits!

eToro Plus500 Markets.com FXFlat

See all top brokers


Register Now - It's free!

By clicking on the "Get instant access" button, you agree that you have read, understood, and accepted the Terms & Conditions.
Or