The first step to getting started with online stock trading is to know the key difference between stocks and shares. Both the terms "Stock" and "Share" are important in their own ways and the distinction isn't as subtle as it may first seem. So, let’s take a look at their simple definitions to help give you a clear picture.
A share represents a portion of a company's stock. So, stocks are divided into shares and each share of stock is equal to a piece of the company’s ownership. To illustrate, if a company X has 1 lakh shares and a person holds 100 shares of X would mean that the person owns stock amounting to 0.1% of X’s total stocks.
When a company seeks to raise capital, it usually issues stocks or borrows money. Hence, stocks are financial securities that represent a part of ownership in one or more corporations. In simple words, when you buy a company's stock, you are buying a percentage of ownership in that company. Depending on the issuing company’s earnings, stocks usually pay dividends to the investor monthly, quarterly, or annually.
Still not clear? Let’s take a quick look at the fundamental differences between stocks and shares below:
· Meaning: Stocks give you an ownership interest in one or more companies. On the other hand, shares represent ownership of one specific company only
· Types: There are mainly two kinds of stocks – Common stock and Preferred stock. As with shares, investors can own two kinds of shares – Private and Public
· Numeric Value: When you own stock in a company, you actually own shares of that company's stock. The term stock has no value and can relate to one or more companies. In contrast, each share has a specific value and relates to a specific company
· Paid Up: Stocks are, by definition, always fully paid up, while shares are paid up in full or in part
· Transfer: Stocks are separable into any amount thus making them transferrable into fractions. With shares, it may not be possible to transfer them into a fraction
· Denomination: In the case of stocks you are free to choose different type of stocks of different values. In the case of shares, you can own multiple shares in a specific company that are of the same or equal value
If you think stocks and shares mean the same thing, you're not alone. While in most cases the distinction is quite minor, it is helpful to know the key differences before you start your investment journey in the stock market.
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