What Are Shares? Everything You Need to Know

Shares are units of ownership in a company or financial asset. When you own shares, you essentially own a piece of that company or asset. Companies issue shares to raise capital, and investors buy shares with the hope of earning a return on their investment.

In this guide, you'll learn:

The different types of shares
How shares are traded
The risks and rewards of investing in shares

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John Ramsey

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Updated on

July 10, 2024

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Glossary

Types of Shares

There are two main types of shares:

Common shares: These are the most common type of share. Common shareholders have voting rights and may receive dividends, which are payments made by the company to its shareholders.
Preferred shares: These shares typically do not have voting rights, but they do have a higher claim on the company's assets and earnings. Preferred shareholders are usually entitled to receive a fixed dividend before common shareholders.

How Shares Are Traded

Shares are traded on stock exchanges, which are marketplaces where buyers and sellers can come together to trade shares. The price of a share is determined by supply and demand. When there are more buyers than sellers, the price of the share will go up. When there are more sellers than buyers, the price of the share will go down.

Risks and Rewards of Investing in Shares

Investing in shares can be a risky proposition, but it can also be very rewarding. The value of shares can fluctuate greatly, and there is always the risk that you could lose money. However, if you invest in a good company, the value of your shares could go up over time, and you could earn a significant return on your investment.

Key Factors Affecting Share Prices

Several factors can influence the price of a share, including:

Company performance: If a company is doing well, its share price is likely to go up. If a company is doing poorly, its share price is likely to go down.
Economic conditions: The overall state of the economy can also affect share prices. If the economy is doing well, share prices are likely to go up. If the economy is doing poorly, share prices are likely to go down.
Industry trends: Trends in the industry that a company operates in can also affect share prices. For example, if there is a growing demand for a company's products or services, its share price is likely to go up.

Conclusion

This guide has offered a comprehensive overview of shares. For those seeking to deepen their understanding, we recommend exploring our guide on stock markets, which dives into the different types of exchanges and how they operate.

Shares FAQ

What are the benefits of owning shares?

Owning shares can provide several benefits, including potential for capital appreciation (increase in share value), dividend income if the company distributes profits, and the ability to influence company decisions through voting rights (for common shareholders).

How do I buy shares?

To buy shares, you typically need to open a brokerage account with a financial institution. Through this account, you can place orders to buy shares of publicly traded companies on stock exchanges.

What is the difference between shares and stocks?

The terms "shares" and "stocks" are often used interchangeably. However, "shares" usually refer to units of ownership in a specific company, while "stocks" can refer to ownership in multiple companies.

Can I lose all my money by investing in shares?

Yes, it's possible to lose all your money invested in shares. Share prices can decline significantly due to various factors, including poor company performance or economic downturns. It's crucial to research and diversify your investments to manage risk.

What are dividends?

Dividends are payments made by a company to its shareholders out of its profits. They are usually paid in cash or additional shares. Not all companies pay dividends, and the amount and frequency can vary.