Shares vs. Stocks: An Overview
The distinction between stocks and shares in the financial markets is blurry. Generally, in American English, both words are used interchangeably to refer to financial equities, specifically, securities that denote ownership in a public company. (In the good old days of paper transactions, these were called stock certificates). Nowadays, the difference between the two words has more to do with syntax and is derived from the context in which they are used.
- 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.
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 she “owns shares,” some people’s inclination would be to respond, “shares in what company?” Similarly, an investor might tell his broker to buy him 100 shares of XYZ Inc. If he said “buy 100 stocks,” he’d be referring to a whole panalopy 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.
What’s The Difference Between Shares And Stocks?
Let’s confine ourselves to equities and the equity markets. Investment professionals often use the word stocks as synonymous with companies—publicly-traded companies, of course. They might refer to energy stocks, value stocks, large- or small-cap stocks, food-sector stocks, blue-chip stocks, and so on. In each case, these categories don’t refer so much to the stocks themselves as to the corporations that issued them.
Financial pros also refer to common stock and preferred stock, but, actually, these aren’t types of stock but types of shares.
So, when people talk about the stock of a company, they are most often talking about their common stock. Common stock represents shares of ownership in a corporation and the type of stock in which most people invest. When people talk about stocks they are usually referring to common stock. In fact, the great majority of stock is issued is in this form. Common shares represent a claim on profits (dividends) and confer voting rights. Investors most often get one vote per share-owned to elect board members who oversee the major decisions made by management. Stockholders thus have the ability to exercise control over corporate policy and management issues compared to preferred shareholders.
A share is the single smallest denomination of a company’s stock. So if you’re divvying up stock and referring to specific characteristics, the proper word to use is shares.
Technically speaking, shares represent units of stock.
Common and preferred refer to different classes of a company’s stock. They carry different rights and privileges, and trade at different prices. Common shareholders are allowed to vote on company referenda and personnel, for example. Preferred shareholders do not possess voting rights, but on the other hand, they have priority in getting repaid if the company goes bankrupt. Both types of shares may pay dividends, but those in the preferred class are guaranteed to be paid first if a dividend is declared.
Common and preferred are the two main forms of stock shares; however, it is also possible for companies to customize different classes of stock to fit the needs of their investors. The different classes of shares, often designated simply as “A,” “B,” and so on, are given different voting rights. For example, one class of shares would be held by a select group who are given perhaps five votes per share, while a second class would be issued to the majority of investors who are given 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.