Stocks and shares are two financial terms related to the stock market. People tend to use these terms interchangeably, but there is a difference between stock and share. When a company issues an Initial Public Offering (IPO) in the stock market, it wants investors to buy its stocks or shares to accumulate money for growing its business. Having stocks or shares means having a stake in the company’s assets and profits. Stockholders or shareholders get to enjoy regular dividends offered by the company. Dividends are paid quarterly or annually and are how the company shares its wealth with its shareholders.
What are Stocks?
Stocks are financial securities bought by an individual in a public company. It represents the individual’s ownership in the company or organization and tells about the proportion of ownership. The individual thus enjoys part ownership of the company’s assets and profits. Upon buying a particular stock, the person becomes a shareholder of that organization. There is no limit to how many stocks a person can buy, thus allowing people to buy multiple stocks in several companies. Stock certificates are issued to stockholders as proof of ownership in the organization.
What are Shares?
On the other hand, shares are the smallest unit of ownership in a company. When a person buys a stock in a company, he gets some shares, each representing a unit of ownership. Shares, thus, tell about the exact amount of ownership the shareholder has in the company. The value of a particular share keeps changing depending upon the stock market trend. If a company’s share price increases, its value also increases and vice versa. Shareholders sell shares in the stock market when prices go up to realize profits.
Difference Between Stock and Share
The two financial instruments are differentiated as follows:
- Stocks represent an individual’s ownership of a company or an organization. A person can hold multiple stocks belonging to various public companies. On the other hand, a share represents a single unit of ownership in a company. This means if a person holds stock in XYZ company, he has bought ‘n’ number of shares in that company.
- In terms of denomination, stocks can have different values. People can choose to buy stocks of different values belonging to different companies. However, shares of a particular company have the same value. If someone buys ‘X’ number of shares in a company, the price of every unit will be the same.
- Stocks generally indicate securities that are traded in the stock exchange. On the other hand, shares can be a part of mutual funds, investment trusts, ETFs or exchange-traded funds, and other financial instruments.
- The difference between stock and share in terms of paid-up value is that stocks are fully paid up, but shares can be fully paid up or partially paid up.
- A share usually has a nominal value, also known as the face value. This value is the lowest value of the share offered by the company. The face value is decided when the stock is issued for the first time. Stock does not have a nominal value, but the shares constituting the stock do.
- Shares have a distinctive number to differentiate between shares. However, stocks do not have a distinctive number.
- Stock does not give information about the amount of investment in a particular company. So, when someone says they hold a stock for ‘XYZ’ company, one does not know how much. However, if someone shares the number of shares they hold of a company, it gives a clear picture of the investment amount.
A stock market is a lucrative option for investing money. It gives good returns compared to other investment options. However, this comes with a fair amount of risk. So, it is essential to gain thorough knowledge about the stock market and the difference between stock and share to make careful decisions on investing money. Beginners interested in taking a plunge in stock markets can gain more information by going through this entire article.