What is a share?
A share is a unit of ownership of a company. Companies sell shares in order to raise capital. In return, shareholders can earn dividends, profit distributions, on their shares and a return on their investment if the shares rise in price.
Prices of shares fluctuate in line with supply and demand. Investors look to make a profit by estimating the direction a share’s price will take. They trade in shares through a stockbroker, often using an online share trading platform.
Where have you heard about shares?
Shares are a major asset class. They're traded on stock markets like the London Stock Exchange and the New York Stock Exchange. They also form the basis of many investment and pension funds.
What you need to know about shares...
What’s the difference between stocks and shares? Strictly speaking, ‘stock or stocks’ refers to shares as an asset class in general, while ‘shares’ is used to talk about the issue of a specific company. But in practice, the terms are used interchangeably.
There are two main types of share; equity shares, also known as ordinary or common shares, and preference shares.
Common shares come with voting rights so equity shareholders can vote in company AGMs. Preference shareholders can’t vote, so they have no control over the company's direction. Equity shareholders also have the right to keep their equity stake in the company by buying additional shares in a rights issue.
Equity shareholders receive a rate of dividend that depends on the company’s profits. The rate of dividend for preference shareholders is fixed so there is less risk. Preference shareholders would also be at the front of the line for payment if the company was to go bankrupt.