Shares vs. Stocks: An Overview
The distinction between stocks and shares within the realm of financial markets can often appear ambiguous to both practitioners and observers. In general discourse, particularly in American English, the terms “stocks” and “shares” are frequently employed interchangeably to describe financial equities. These equities specifically refer to securities that represent ownership in a public company, thereby entitling the holder to a proportionate claim on the company’s assets and earnings. Historically, during the era of paper-based transactions, these equity interests were formally documented through stock certificates, which served as tangible evidence of ownership.
In modern financial terminology, the differentiation between “stocks” and “shares” tends to hinge more on syntactical usage than on substantive differences in meaning. While “stocks” is often used as a collective term to discuss the overall collection of equities from various companies, “shares” typically refers to specific units of ownership in an individual company. For instance, one might refer to investing in stocks when discussing a broad market strategy, while conversely, one would specify the purchase of shares when indicating the acquisition of a certain number of equity units in a particular firm. This nuanced distinction is largely context-dependent, shaped by the specific circumstances and the nature of the discussion at hand.
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KEY TAKEAWAYS
- For all intents and purposes, stocks and shares refer to the same thing.
- The minor distinction between stocks and shares is usually overlooked, and it has more to do with syntax than financial or legal accuracy.
- To invest in stocks or, more specifically, to invest in shares of a company’s stock, you will need your own brokerage account.
In modern financial terminology, the differentiation between “stocks” and “shares” tends to hinge more on syntactical usage than on substantive differences in meaning. While “stocks” is often used as a collective term to discuss the overall collection of equities from various companies, “shares” typically refers to specific units of ownership in an individual company. For instance, one might refer to investing in stocks when discussing a broad market strategy, while conversely, one would specify the purchase of shares when indicating the acquisition of a certain number of equity units in a particular firm. This nuanced distinction is largely context-dependent, shaped by the specific circumstances and the nature of the discussion at hand.
Similar Terminology
Of the two, “stocks” is the more general, generic term. It is often used to describe a slice of ownership of one or more companies. In contrast, in common parlance, “shares” has a more specific meaning: It often refers to the ownership of a particular company.
So if someone says they “owns shares,” some people’s inclination would be to respond, “shares in what company?” Similarly, an investor might tell their broker to buy 100 shares of XYZ Inc. If they said “buy 100 stocks,” they’d be referring to a whole panoply of companies—100 different ones, in fact.
That comment “I own shares” might also spark a listener to respond even more generally, “Shares of what? What sort of investment?” It’s worth noting that one can own shares of several kinds of financial instruments: mutual funds, exchange-traded funds, limited partnerships, real estate investment trusts, etc. Stocks, on the other hand, exclusively refer to corporate equities, securities traded on a stock exchange.
Stocks
Let’s focus on equities and the equity markets. Investment professionals frequently use the term “stocks” interchangeably with companies, specifically publicly-traded companies. They might discuss various types such as energy stocks, value stocks, large-cap or small-cap stocks, food-sector stocks, and blue-chip stocks. In these instances, the categories primarily refer to the companies that issued the shares rather than the stocks themselves. Financial experts also mention common stock and preferred stock; however, these actually represent different types of shares rather than types of stock. When discussing a company’s stock, the conversation typically centers around common stock. Common stock signifies ownership shares in a corporation and is the primary form of stock in which most investors engage. Therefore, when people mention stocks, they are generally referring to common stock. The vast majority of stock is issued in this manner. Common shares provide a claim on profits (dividends) and offer voting rights. Typically, investors receive one vote per share owned to elect board members who make crucial management decisions. This voting power allows stockholders to exert influence over corporate policies and management matters, in contrast to preferred shareholders.
A share represents the smallest unit of ownership in a company’s stock. When discussing specific features of stock, the correct term to use is shares. Common and preferred are two different categories of a company’s stock, each with distinct rights and privileges, as well as varying trading prices. For instance, common shareholders have the right to vote on company matters and personnel decisions. In contrast, preferred shareholders lack voting rights but have priority for repayment in the event of the company’s bankruptcy. Both common and preferred shares may offer dividends, but preferred shares are guaranteed to receive dividends first if they are declared. While common and preferred are the primary types of stock shares, companies can also create various classes of stock tailored to the preferences of their investors. These classes are typically labeled as “A,” “B,” etc., and come with different voting rights. For example, one class may be assigned to a select group of investors who receive five votes per share, while another class is issued to the majority of investors, with each receiving just one vote per share.
The interchangeability of the terms stocks and shares applies mainly to American English. The two words still carry considerable distinctions in other languages. In India, for example, as per that country’s Companies Act of 2013, a share is the smallest unit into which the company’s capital is divided, representing the ownership of the shareholders in the company, and can be only partially paid up. A stock, on the other hand, is a collection of shares of a member, converted into a single fund, that is fully paid up.
For all intents and purposes, yes. Both shares and stocks refer to equity ownership in corporations, and owners can be referred to as either shareholders or stockholders.
How can I buy shares or stocks?
To buy shares or stocks, you will need to open a brokerage account with a licensed broker-dealer who can execute your orders on the stock exchange. You will also need to have enough funds in your account to cover the cost of your purchase and any fees or commissions charged by your broker. You can then research and select the shares or stocks that you want to buy, and place your order through your broker’s platform. You can buy shares or stocks at the current market price (a market order) or at a specified price (a limit order). Once your order is filled, you will receive a confirmation and your shares or stocks will be held in your account.