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. Before you start your journey into the world of both stocks and shares, getting a clear understanding of these often interchangeably used terms is required. To some degree, it is true that they are the same, to the extent that both refer to an individual’s ownership in any public company. However, the difference lies in the fact that “stock” is a more generally applicable term, and “share” involves a meaning that is more specific. So, let’s take a look at their simple definitions to help give you a clear picture.
What is a Share?
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, this would mean that the person owns stock amounting to 0.1% of X’s total stock. Hence, here, “share” pertains to a specific amount of “stock”. Stock is taken as a general holding of a company. You should be clear that “share” represents a unit of ownership in a single public company. A “share” can be explained as the smallest unit of the stock that a company holds.
What is a Stock?
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.
Stocks vs Shares:
Still not clear about the difference between a stock and a share? 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. For instance, if A has made an investment in stocks, it may mean that A has a portfolio of shares that spans different companies. However, if A has made an investment in shares, you may ask A, which company's shares have been invested in, or how many shares they have invested in.
Types: There are mainly two kinds of stocks – Common stock (giving investors the right to vote at meetings of shareholders) and Preferred stock (those investors who are not given voting rights with such stock). As with shares, investors can own two kinds of shares – Private and Public - pertaining to the kind of company.
Under the two categories of stocks, both common and preferred, there are other categories. For instance, growth stocks refer to those stocks that grow and earn returns faster than the normal market averages. There are also income stocks that pay investors regular dividends. Another sub-category, value stocks, has a low price to earnings ratio. Then there are blue-chip stocks that are stocks of very large corporations with a robust growth history. Knowing the stock and share difference can help you when you invest.
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. At the time that the stock of a company is issued to an investor, a value is assigned to each share. This is different from the market value which varies according to the demand and supply of shares in question.
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
What is a Stock Denomination? What is a Share Denomination?: In the case of stocks, you are free to choose different types 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.
Kinds of Investments Made
In the most plain terms, shares can represent a large group of financial instruments that are commonly called securities. These may include ETFs (exchange traded funds), mutual funds, real estate investment trusts, limited partnerships, etc. However, stocks specifically refer to securities and corporate equity traded on stock exchanges.
Wrapping Up
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. The distinction to the most seasoned investors can be blurry. However, when you step into the financial markets, you must be able to know the fine lines of distinction.
In both American and British English, if this is any consolation, the terms regularly refer to financial equity. Specifically, these words represent securities which denote ownership that investors have in any public companies. In the good old days, when physical certificates were issued to represent share ownership, these were either called “stock certificates” or “share certificates”. Today, the differences between stocks and shares has more to do with simple syntax, derived largely from the context in which the two words are used.
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