Understanding Shares

Shares are units of ownership interest in a corporation that are available for investors to buy or sell. Companies create shares in order to raise capital, which they can invest to grow their business.

How It Works

Shareholders are investors who buy the shares a company creates, and who therefore own a part of the company. When shareholders buy a share, it is usually an "ordinary share" or "common share," which means that they can vote in the election of the company's executive team approve or vote against new share issues and other money raising activities, and in some cases receive payouts known as dividends. Shareholders are entered on the company's shareholder register, which is a list of all the investors who hold a stake in it. Investors buy shares for capital growth (holding to underlying value or price of the shares will rise, and for income if the shares pay dividends. Share price rise and fall based on a company's financial performance, general economic news, and market sentiment-how investors feel about a company or the wider economy. If a share price fluctuates in a short space time it is said to be volatile. If one company's share price is volatile it can indicate investor worries about that company; if volatility affects all share prices it can indicate instability in entire markets.

Need To Know

> Listed A share that appears on the register (list) of the stock exchange on which it is being traded (bought or sold).

> Quote The most recent price at which a share has been traded. Stock exchanges are now all electronic, and prices can be seen changing minute by minute during the course of the day.

> Stocks "Stocks" describes the ownership of shares in general. "Shares" refers to the ownership of shares in a particular company.

Issuing Shares

Companies issues shares when they need money to invest or pay off costs. When an investor buys a share, they become a shareholder and own a small part of the company.

Understanding Shares

1. Once shares have been issued they can then be traded on the stock market.

2. The price of a share favored by investors tend to rise; if investors lose confidence, the price tends to fall.

3. If a company does well, shareholders share in the returns. This is what makes buying share so exciting to investors.

4. Shareholders buy part of a company. If share values fall, there is no guarantee that they will get their money back.

5. If a company goes bust, shareholders will probably lose most or all of their initial capital.

6. If a company fails, shareholders lose their investment but they are not responsible for a company's debts.