Stocks and shares refer to ownership units in a company. When you buy stocks or shares, you become a part-owner of that company. The more stocks/shares you own, the larger your ownership stake becomes.
Owning stocks/shares provides certain benefits. Stockholders or shareholders may receive dividends, which are portions of the company’s profits distributed periodically, usually quarterly or annually. Additionally, many stocks/shares come with voting rights, allowing owners to participate in critical company decisions like electing the board of directors.
The Difference
While “stocks” and “shares” are often used interchangeably, there is a subtle difference in their meanings. “Stocks” is a broader term referring to ownership in companies generally. “Shares” refers specifically to the individual units of ownership within a particular company. For example, “I invest in stocks” implies ownership across multiple companies, while “I own 100 shares of Apple” specifies the exact company and number of shares held.
What Are Equities?
Equities is simply another term for stocks/shares. It represents an ownership position in a company. The more equity one holds in a company, the greater their ownership stake.
Stock Exchanges and Trading
Stocks/shares are traded on stock exchanges like the London Stock Exchange (LSE). Investors can buy and sell based on considerations like a company’s performance, financial health, industry trends, and overall market conditions. Some approach investing for long-term growth, while others trade more actively to capitalise on short-term price movements.
Buying Stocks/Shares
Buying stocks and shares these days happens through online platforms or investment firms. Here’s how it works:
Investment Brokers: These are companies acting as middlemen between you and the stock exchange. They offer a platform to buy and sell shares, and hold your investments securely. Different brokers have varying fees, commission structures, and investment options.
Online Investment Platforms: These are digital marketplaces where you can directly buy and sell stocks and shares. They often have lower fees compared to traditional brokers, but might offer fewer investment choices or research resources.
Frequently Asked Questions
What is the difference between buying and trading shares?
The key difference between buying and trading shares lies in the investment goal.
Buying Shares (Investing): This approach focuses on acquiring shares with the intention of holding them for an extended period, typically years or even decades. Investors aim to benefit from the company’s long-term growth potential, which can translate to increasing share prices and dividend payouts. They focus on factors like a company’s financial health, industry trends, and overall business strategy.
Trading Shares: Traders are more concerned with short-term price fluctuations. They might hold shares for minutes, hours, days, or weeks, aiming to capitalise on market movements and news events that can cause share prices to swing. Traders rely heavily on technical analysis tools and charts to identify trading opportunities and potential entry and exit points.
