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Stock vs share: What’s the difference?
All investors should understand the concepts of stocks, shares and equity. The stock market is the most widely trodden pathway towards wealth, and these are the heart of it.
Big ideas
- Stocks and shares get used interchangeably, so understanding the legal and financial implications is more important than the labels used.
- Stocks represent ownership in a company, entitling shareholders to profits and voting rights; traded on stock exchanges, subject to market fluctuations and risks.
- Shares are units of ownership in a company, including common and preferred shares, providing different dividends and voting rights; companies may issue Class A, B, or C shares with varying privileges.
QUOTE
"The stock market is filled with individuals who know the price of everything but the value of nothing."
The terminology used by stock market insiders can be a little confusing, but the core principles are easily understood. Much of the language overlaps with ideas and concepts that mean the same thing.
More important than differences in language is understanding the different types of stock and shares and what the legal and financial implications of ownership happen to be.
More important than differences in language is understanding the different types of stock and shares and what the legal and financial implications of ownership happen to be.
What are stocks?
A stock, also known as a "common stock" or "equity," is a financial instrument demonstrating a person has ownership of a publicly traded company.
When an individual buys a stock, they essentially buy a portion of the company's ownership. This entitles them to a proportionate ‘share’ of the company's profits and voting rights in certain company decisions, such as who to pick as board members and major business decisions.
When an individual buys a stock, they essentially buy a portion of the company's ownership. This entitles them to a proportionate ‘share’ of the company's profits and voting rights in certain company decisions, such as who to pick as board members and major business decisions.
How do stocks get created?
When a company decides to raise money, it can issue some stock, representing partial ownership of the company to investors in exchange for capital. In this way, the company can raise funds without taking on debt. In other words, stock ownership equates to company ownership, and stock owners are company owners.
The value of a stock is set by the market’s demand for it, which is usually a combination of sentiment and what investors think the company's future earnings potential is.
Stocks are traded on stock exchanges like the London Stock Exchange (LSE), New York Stock Exchange (NYSE) or NASDAQ.
Stocks are traded on stock exchanges like the London Stock Exchange (LSE), New York Stock Exchange (NYSE) or NASDAQ.
The terms "shares" and "stocks" are often used interchangeably, and in many contexts, they refer to the same concept - ownership in a company.
One way to distinguish the two terms is:
Stock is the name of the contract that has a ticker symbol. For example, the way you become a shareholder of Apple (AAPL) is to buy Apple stock.
Shares are the units of the stock that you buy. For example, you might buy five shares of Apple
However, there are some situations where one term might be more commonly used or preferred over the other:
One way to distinguish the two terms is:
Stock is the name of the contract that has a ticker symbol. For example, the way you become a shareholder of Apple (AAPL) is to buy Apple stock.
Shares are the units of the stock that you buy. For example, you might buy five shares of Apple
However, there are some situations where one term might be more commonly used or preferred over the other:
- Formal documents and legal contexts - In official documents, legal contracts, and financial statements, you may find the term "shares" more commonly used.
- Everyday language - In casual conversations and general discussions about investments, people often use "stocks" more frequently than "shares."
- Financial media and news - You will commonly see headlines like "Tech stocks surge" or "Stock market hits all-time high."
- International variations - In some countries, such as the United Kingdom, "shares" might be more prevalent, while in the United States, "stocks" is the more common term.
QUOTE
“Whether socks or stocks, I like buying quality merchandise when it is marked down.”
Share prices are determined by supply and demand in the market, as well as the perceived value of the company's future earnings potential. Share prices can be highly volatile and subject to fluctuations based on various factors.
Stock price and share price both refer to the price at which a company's shares are currently trading on a stock exchange.
What does a stock price look like?
You might not have noticed before, but a stock is quoted with two prices. These are the bid and ask price.
The bid price is the highest price that a buyer (investor or trader) is willing to pay for a specific stock at a given moment. It represents the maximum price that someone is willing to offer to buy shares of the stock.
For example, if you see a stock with a bid price of $50, it means that there is a buyer in the market who is willing to purchase the stock at $50 per share. This bid price reflects the demand for the stock from buyers.
The ask price, also known as the "offer price" or "offered price," is the lowest price at which a seller is willing to sell a specific stock at a given moment. It represents the minimum price that someone is willing to accept to sell their shares of the stock.
For example, if you see a stock with an ask price of $52, it means that there is a seller in the market who is willing to sell the stock at $52 per share. This ask price reflects the supply of the stock from sellers.
For example, if you see a stock with a bid price of $50, it means that there is a buyer in the market who is willing to purchase the stock at $50 per share. This bid price reflects the demand for the stock from buyers.
The ask price, also known as the "offer price" or "offered price," is the lowest price at which a seller is willing to sell a specific stock at a given moment. It represents the minimum price that someone is willing to accept to sell their shares of the stock.
For example, if you see a stock with an ask price of $52, it means that there is a seller in the market who is willing to sell the stock at $52 per share. This ask price reflects the supply of the stock from sellers.
Companies can issue different types of shares, including common shares and preferred shares.
Common shares are the most commonly traded type of share and provide voting rights to shareholders, while preferred shares typically provide a fixed dividend payment to shareholders but usually do not carry voting rights.
Preferred stockholders are paid a fixed dividend rate, which is usually higher than the dividend paid to common stockholders. This fixed dividend payment is often considered more stable and reliable than the variable dividends paid on common stock. In the event of a company's bankruptcy, preferred stockholders are also typically paid first.
Common shares are the most commonly traded type of share and provide voting rights to shareholders, while preferred shares typically provide a fixed dividend payment to shareholders but usually do not carry voting rights.
Preferred stockholders are paid a fixed dividend rate, which is usually higher than the dividend paid to common stockholders. This fixed dividend payment is often considered more stable and reliable than the variable dividends paid on common stock. In the event of a company's bankruptcy, preferred stockholders are also typically paid first.
Types of stocks
The types of stocks are identical to the types of shares, preferred and common being the main categories for purchase. It also includes more niche types of stocks such as redeemable stocks, dual-class stocks, restricted stocks, and treasury stocks.
- Redeemable shares - these are shares that can be bought back by the company at a pre-determined price.
- Dual-class shares - these are shares that have different voting rights. For example, one class of shares may have more voting power than another.
- Restricted shares - these are shares that are subject to restrictions, such as a lock-up period during which the shares cannot be sold.
- Treasury shares - such shares that have been rebought by the firm, now held in its treasury. Treasury shares do not confer voting rights or dividends.
NOTE
‘Types’ of shares differ from the ‘class’ of shares.
Class A, B, and C shares are different types of stock that a company may issue, with each class having its own set of rights and characteristics. Here are some of the differences between these classes of shares:
- Voting rights - Class A shares typically have more voting rights than Class B and Class C shares. Class B and C shares may have limited or no voting rights, which means that shareholders cannot vote on certain company decisions.
- Dividends - Class A shares and Class B shares typically have the same dividend rights, while Class C shares may have different dividend rights. For example, Class C shares may receive a lower dividend payment than Class A and Class B shares.
- Conversion - Class B shares may be convertible into Class A shares, while Class C shares are usually not convertible into any other class of shares.
- Purpose - Class A shares are typically issued to company insiders, such as executives and founders, while Class B and Class C shares may be issued to outside investors.
Attribute | Class A | Class B | Class C |
Voting | Usually has the most power | 1 vote = 1 share | Limited or no voting power |
Price & Availability | Most expensive. Potentially unavailable to the public | Available on public exchanges | Lowest priced, may be given to employees as compensation package |
Trading Restrictions | May not be tradeable, but often convertible | Tradable | May not be tradeable |
Liquidations | Highest priority for dividends and profit | No preferential treatment | No preferential treatment |
It’s very important to understand that Class A, B, and C shares are not preferred stock, but common stock. Class A common stock will still be paid after preferred stock in the event of company liquidation/bankruptcy.
It’s equally important to understand that there is no legal requirement to structure shares in this way. Meta, for instance, assigns more voting power to Class B shares. Technology companies tend to have a different class structure for shares than traditional companies. So be careful when investing in Class A technology shares, as these tend to have the same privileges as traditional Class B shares.
It’s equally important to understand that there is no legal requirement to structure shares in this way. Meta, for instance, assigns more voting power to Class B shares. Technology companies tend to have a different class structure for shares than traditional companies. So be careful when investing in Class A technology shares, as these tend to have the same privileges as traditional Class B shares.
TIP
Be careful when investing in Class A technology shares, as these tend to have the same privileges as traditional Class B shares.
What is equity in stocks?
In the context of investments and finance, equity refers to an ownership interest in a company or an asset. When someone holds equity in a company, they are a shareholder and have a claim on a portion of the company's assets and earnings.
Shareholders equity is an accounting term that denotes the total value that would be given to shareholders if the company's assets were immediately liquidated. It can also mean the book value of a company. The formula for shareholder's equity/book value would merely be total assets - total liabilities.
Shareholders equity is an accounting term that denotes the total value that would be given to shareholders if the company's assets were immediately liquidated. It can also mean the book value of a company. The formula for shareholder's equity/book value would merely be total assets - total liabilities.
Formula
Shareholder’s Equity = Total Assets - Total Liabilities
Equity is probably most commonly used when contrasting stocks and shares with bonds. The shares are the equity portion of the portfolio and the bonds are the fixed income portion of the portfolio. You might have a financial advisor who advised you to have a 60/40 portfolio, which is 60% equity and 40% fixed income (bonds).
Shares and bonds are both securities that companies can issue to raise capital from investors, but they have some key differences.
Shares correspond to company ownership. When an investor purchases shares in a company, they become a shareholder and have a claim on a portion of the company's assets and earnings. Shareholders may receive dividends on their investments if the company pays them.
Bonds correspond to company debt. When an investor purchases a bond, they essentially loan money to the issuer (a company, government or other entity) for a set period in exchange for regular interest payments and the return of the principal investment at maturity.
Shares correspond to company ownership. When an investor purchases shares in a company, they become a shareholder and have a claim on a portion of the company's assets and earnings. Shareholders may receive dividends on their investments if the company pays them.
Bonds correspond to company debt. When an investor purchases a bond, they essentially loan money to the issuer (a company, government or other entity) for a set period in exchange for regular interest payments and the return of the principal investment at maturity.
How does it work? | Stocks | Bonds |
Definition | Ownership in a company | Debt owed by a company/government |
Issuer | Publicly traded companies | Companies or governments |
Return on Investment | Dividends and potential capital appreciation | Fixed interest payments (coupon) and return of principal at maturity |
Risk | Higher. Risk of loss of capital | Lower risk compared to stocks |
Voting Rights | Yes (common stock) | No |
Priority in Bankruptcy | Lowest priority | Higher priority over stocks |
Market Value | Fluctuates based on demand and supply in the market | Generally more stable in value |
Liquidity | Can be bought/sold easily | Generally less liquid than stocks |
Time Horizon | Are traded but best for long-term investment | Suitable for both short-term and long-term investment |
Purpose | Raises capital for company expansion or operations | Raises capital for projects or refinancing |
Ownership Stake | Represents partial ownership in the company | Does not provide ownership rights |
Risk vs. Reward | Potential for higher returns but higher risk | Offers lower returns but lower risk |
Diversification | Can be more challenging to diversify across stocks | Easier to diversify across different bond types |
Overall, shares are higher returns but higher risk as compared to fixed income (bonds). Bond investments offer lower potential returns but are generally considered less risky than shares. Most investment professionals recommend a portfolio mix between stocks and bonds for the correct blend of risk vs reward.
With the help of investing apps like Trading 212, stock market investing is straightforward and accessible. You can sign up for an online account with access to shares from across the globe.
You’ll want to ensure that your deposits are ensured, that you can trade commission-free, that the platform has good online reviews, and that you have a large list of stocks and ETFs to choose from. Trading212 has over 12,000 stocks and ETFs to choose from.
You’ll want to ensure that your deposits are ensured, that you can trade commission-free, that the platform has good online reviews, and that you have a large list of stocks and ETFs to choose from. Trading212 has over 12,000 stocks and ETFs to choose from.
Recap
There is little differentiation between stocks and shares. Everybody will understand whether you use each term.
Arguably, what is more important is knowing the characteristics of the stocks you own. For example, regardless of whether a stock is Class A or Class B, read about your rights and obligations (in a company's incorporation documents) if you invest in it. Do you have voting rights, and do you get the same dividends? What happens upon liquidation?
The best option is first to decide what you are looking for and then to investigate if a given share or stock meets those criteria. After all, there is no point in paying for voting rights if you don’t intend to use them.
Arguably, what is more important is knowing the characteristics of the stocks you own. For example, regardless of whether a stock is Class A or Class B, read about your rights and obligations (in a company's incorporation documents) if you invest in it. Do you have voting rights, and do you get the same dividends? What happens upon liquidation?
The best option is first to decide what you are looking for and then to investigate if a given share or stock meets those criteria. After all, there is no point in paying for voting rights if you don’t intend to use them.
FAQ
Q: How many shares are in a company?
The number of shares in a company will vary depending on the size of the company and the specific details of its capital structure. A company may issue a certain number of shares when it is first formed, but it may issue additional shares later on to raise capital or for other reasons.
The total number of shares that a company can issue is usually defined in its articles of incorporation or bylaws. The number of shares a company has outstanding at any given time is the number of shares that have been issued and are held by shareholders.
The total number of shares that a company can issue is usually defined in its articles of incorporation or bylaws. The number of shares a company has outstanding at any given time is the number of shares that have been issued and are held by shareholders.
Q: How many stocks and shares ISAs can I have?
In the UK, individuals are currently allowed to have one stock and shares ISA (Individual Savings Account) per tax year. (April 6 to April 5).
It's worth noting that while you can only contribute to one stock and share ISA in a given tax year, they are not restricted to using the same ISA provider every year. It is possible to transfer an existing ISA to a different provider as long as the transfer is done in accordance with the ISA provider's terms and conditions.
You should also be eligible to open and contribute to other types of ISAs in the same tax year, such as a cash ISA or an innovative finance ISA, up to the annual ISA allowance limit.
Tax treatment depends on the individual circumstances of each client and may be subject to change in future.
It's worth noting that while you can only contribute to one stock and share ISA in a given tax year, they are not restricted to using the same ISA provider every year. It is possible to transfer an existing ISA to a different provider as long as the transfer is done in accordance with the ISA provider's terms and conditions.
You should also be eligible to open and contribute to other types of ISAs in the same tax year, such as a cash ISA or an innovative finance ISA, up to the annual ISA allowance limit.
Tax treatment depends on the individual circumstances of each client and may be subject to change in future.
Q: What’s the difference between preferred and common stock?
The main differences between the two are in their ownership rights, dividend payments, and voting rights. A common stock gives shareholders the right to vote on matters such as the election of board members and other corporate decisions.
Holders of common stock may also receive dividends. Upon liquidation, preferred stockholders are paid first, before holders of common stock. Preferred stock is regarded as a type of hybrid security(between debt and equity), whereas common stock represents pure equity ownership in a company.
Holders of common stock may also receive dividends. Upon liquidation, preferred stockholders are paid first, before holders of common stock. Preferred stock is regarded as a type of hybrid security(between debt and equity), whereas common stock represents pure equity ownership in a company.
Q: What is the dividend yield of preferred stock?
The dividend yield of preferred stock is the annual dividend payment divided by the price of the preferred stock, expressed as a percentage.
Preferred stock is a type of stock that typically pays a fixed dividend rate, which is usually higher than the dividend paid to common stockholders.
Preferred stock is a type of stock that typically pays a fixed dividend rate, which is usually higher than the dividend paid to common stockholders.
