The basic principle of stock market shares explained
Put simply a share is a slice of ownership of a company, articulated as a financial value. Let’s say for example a company is valued at £50 million and there are 25 million shares, then each share is worth £2. If the company is a Public Limited Company (plc) listed on the stock market then the value of it’s shares can go up or down depending on how well the company does or how strong the stock market is as a whole at any given time. As the share price goes up or down the total market value of the company (number of shares multiplied by the share price) also goes up and down.
In the UK shares in public limited companies are bought on sold on the London Stock Exchange.
There’s a difference between buying individual shares and buying funds (a pool of various shares). Once you’re done here, make sure you also check out our explanation of how a fund works.
Why do people buy shares?
A company issues shares to raise money to help them grow and develop their business. People buy shares as an investment which they hope will provide a return in one of two ways. They may believe the price of the share will rise in value over time as a result of the company doing well, allowing them to eventually sell the share at a higher price than they paid for it and therefore profit from the difference in price. This is called investing for growth. Alternatively, people may buy a share because of the income potential it provides. Some companies pay out a portion of their profits to their shareholders through something called a dividend. The value of the dividend will vary by company and be relative to the number of shares owned.
Let’s dispel one of the myths out there – you don’t have to be a professional investor to buy shares. You don’t need to have certain qualifications or special contacts. Any everyday person can buy shares if they wish to.
What’s the difference between stocks and shares?
Don’t worry about getting confused by these terms, they are often used interchangeably. Put simply, a share represents a single unit of ownership in an individual company. Stocks is more of a general term used to describe investments in any company that is publicly traded. The term stock is often used to describe a collection of shares. Think of the “stock market” which is the total collection of publicly traded shares.
Keeping it simple
A share represents a piece of ownership in a company, somebody who owns a share is a shareholder. Anyone can get started investing in buying shares, whether you should or not is a personal decision.
If you’re keen to learn more make sure you check out the rest of our website or grab a copy of our free Beginner’s Guide to Investing in the Stock Market.
All our content is provided for educational purposes only, to help you make your own decisions. We don’t provide personalised advice and therefore our content should not be considered an invitation, inducement or recommendation to engage in any particular investment activity. Please review our disclaimer and website terms for full details.
