Stocks and Shares Explained

Stocks and shares - we've all heard these terms mentioned, whether on the television news, in conversation or at work, but what do we really understand about the concepts of stocks, shares and the stockmarket? Let us help you cut through the jargon and build your knowledge of these financial terms.

Stocks and Shares: what's the difference?

Although there is a difference between the terms stocks and shares, in reality these two terms are often seen as interchangeable by many who talk about investing in stocks or shares.

Stock refers to capital (finance) raised by a company through the issue of shares. Sound complicated? It needn't be!

When a company wants to raise money, maybe to help with its expansion, it will often look to people like me and you to help. In return, we will be offered a share of the company.

So, when we purchase shares we are literally buying a share of the company.

Why buy shares

An obvious question that you may be asking at this point is: why should we bother buying shares at all?

The short answer to this is that, in return for providing capital to the company, the company will look to reward its shareholders. For example, if a company performs well then you, as a shareholder, would expect to receive a dividend. We'll talk more about dividends later in these articles but they are basically an amount of money that is paid to each shareholder (per share that is held).

As a shareholder you will also have a say in how the company is run - you will, for instance, be invited to the Annual General Meetings of the company, allowing you to ask questions of the company's management.

If you're lucky and you buy shares in the right company then you may even see the value of your shareholding increase over time, meaning that you could potentially have a very nice investment.

Next: History of the UK Stockmarket
Free Guide to Shares