Some people think shares and stocks are the same. The truth is, they are different, but also kind of the same. Understanding this distinction is important because these classifications mean different things in the finance world. Outside of that world, however, the terms “stocks” and “shares” are used interchangeably and thus, incorrectly. In this article, we will find out how these two terms describe similar things and what the difference between them is. Perhaps you’ve found yourself using these terms and wondered whether they are the same or synonymous… or whether you were mistaken. Let’s find out!
Contents:
- What are stocks and shares?
- What is a stock?
- What are shares?
- The similarities between stocks and shares
- The differences between stocks and shares
- Calculating a company’s size using shares
- Preferred stocks vs. common stocks
- Conclusion
Interact with the underlined words and green dots to get additional details and explanations.
What are stocks and shares?
The difference between stocks and shares is quite big. Here are their simple definitions to help clarify things:
What is a stock?
Public companies issue stocks to gain capital and find investors who are interested in their business. This helps raise funds and grow the company. Whenever someone buys a company’s shares, they hope the company will perform well in the future and gain profit, which causes the stock price to rise; investors then gain from both the capital gain on their shares and also from the dividends paid out by the company. Institutional investors and hedge funds are the best kinds of investors that a company can hope for, as they purchase a large stake in the company and are often well known for making good investment decisions, which reflects positively on the company and its future.
Stocks can be traded on various stock exchanges such as the New York Stock Exchange for the United States market, the London Stock Exchange for the United Kingdom’s market and the Bombay Stock Exchange for the Indian market.
What are shares?
Shares are single units denoting ownership in a company, and their main feature is that they are measurable. If you have one share of Apple, that means we can calculate the percentage of ownership (or stake) you have in the company. How? Because each company issues a limited number of shares. Lets understand this with the help of an example: Company X has a total of 1,000 shares circulating the market, and you own 100 of them. This means that you own 10% of the company, because you own 10% of the total number of the company’s shares.
Shares and stocks both refer to the ownership of a company, but a “stock” is a general term that cannot be calculated, while shares are measurable with limited calculable numbers available on the market.
Similarities between stocks and shares
Shares and stocks can both be used to say that you own a particular company, but they are phrased in different ways, because “shares” are countable but the stock of one company is not. For example, you can say “I own Apple shares,” or “I own Apple stock.” Both statements are correct and share the same meaning when it comes to ownership.
The differences between stocks and shares
Shares can be calculated because they have a value that can be measured. On the other hand, a stock cannot be calculated or measured, as it is an abstract form of the shares and a general term used to describe ownership of a company. When you see or hear that a company’s share price is at, say, $100, that refers to the amount it would cost to purchase one share of the company’s stock, and that figure is the price that the stock has most recently traded for. That’s why it is incorrect to say “I own one stock of Apple,” because nobody owns 100% of Apple’s stock. In a financial context, a stock cannot be counted unless referring to multiple, separate stocks. Each public company has its own stock, so when we refer to “stocks” in the plural, we are often talking about the market as a whole, or about multiple companies at once: “Stocks in the tech sector are rising today,” for example. The main difference is grammatical and how we use these terms in conversation.
| Stock | Share |
|---|---|
| Stock refers to the company that issues it (e. g., Coca-Cola stock). | A share is a unit of measurement of your ownership interest in a company (e.g., one share of Netflix stock). |
| Stock represents non-specific ownership interest in a company. | A share represents a specific unit of ownership of a stock. |
| A stockholder owns stock in a company, which doesn’t necessarily mean ownership of its shares. | A shareholder owns shares of stock in a company. |
Another difference worth noting is between a shareholder and a stockholder. While a shareholder refers simply to a person or entity who owns shares in a company, a stockholder’s ownership can be in the form of bonds or another kind of indirect investment.
Calculating a company’s size using shares
Here’s the most interesting part: Shares are the key to finding out the size of a company, whether it is a small-cap, mid-cap or large-cap firm.
What you have to do is simply take the price of a share and multiply it by the total number of shares to reveal the total market value, or market capitalization, of the firm.
Market capitalization formula = Current market price per share × Total number of outstanding shares
Preferred stocks vs. common stocks
Common stocks and preferred stocks are the same in that both provide ownership of the company and both pay out dividends, but there are few differences. Firstly, common stocks have voting rights, while preferred stocks don’t. This is the biggest difference between common stocks and preferred stocks. The second major difference is that dividends are fixed for preferred stocks, but they are not for common stocks.
| Common stock | Preferred stock |
|---|---|
| Voting rights | No voting rights |
| Dividends fluctuate | Dividends are set |
| More volatility | Less volatility |
Remember, both stock types have investment risks!
Conclusion
Most people use the words “stocks” and “shares” interchangeably, but there is quite a difference between them, which traders in particular need to keep in mind. The most important difference is that shares can be counted and stocks cannot. Now that you know the difference, you can research how to pick stocks more easily and start making money on the stock market.
Trade on Stocks NowRisk warning: The contents of this article do not constitute investment advice, and you bear sole responsibility for your trading activity and/or trading results.
