Shares vs. Stocks: An Overview
The distinction between stocks and shares in the financial markets is blurry. Generally, in American English, both words are used interchangeably to refer to financial equities, specifically, securities that denote ownership in a public company. (In the good old days of paper transactions, these were called stock certificates). Nowadays, the difference between the two words has more to do with syntax and is derived from the context in which they are used.
Key Takeaways
- For all intents and purposes, stocks and shares refer to the same thing.
- The minor distinction between stocks and shares is usually overlooked, and it has more to do with syntax than financial or legal accuracy.
- To invest in stocks or, more specifically, to invest in shares of a company's stock, you will need your own brokerage account.
Similar Terminology
Of the two, "stocks" is the more general, generic term. It is often used to describe a slice of ownership of one or more companies. In contrast, in common parlance, "shares" has a more specific meaning: It often refers to the ownership of a particular company.
So if someone says they "owns shares," some people's inclination would be to respond, "shares in what company?" Similarly, an investor might tell their broker to buy 100 shares of XYZ Inc. If they said "buy 100 stocks," they'd be referring to a whole panoply of companies—100 different ones, in fact.
That comment "I own shares" might also spark a listener to respond even more generally, "Shares of what? What sort of investment?" It's worth noting that one can own shares of several kinds of financial instruments: mutual funds, exchange-traded funds, limited partnerships, real estate investment trusts, etc. Stocks, on the other hand, exclusively refer to corporate equities, securities traded on a stock exchange.
Stocks
Let's confine ourselves to equities and the equity markets. Investment professionals often use the word stocks as synonymous with companies—publicly-traded companies, of course. They might refer to energy stocks, value stocks, large- or small-cap stocks, food-sector stocks, blue-chip stocks, and so on. In each case, these categories don't refer so much to the stocks themselves as to the corporations that issued them.
Financial pros also refer to common stock and preferred stock, but, actually, these aren't types of stock but types of shares.
So, when people talk about the stock of a company, they are most often talking about their common stock. Common stock represents shares of ownership in a corporation and the type of stock in which most people invest. When people talk about stocks they are usually referring to common stock. In fact, the great majority of stock is issued is in this form. Common shares represent a claim on profits (dividends) and confer voting rights. Investors most often get one vote per share-owned to elect board members who oversee the major decisions made by management. Stockholders thus have the ability to exercise control over corporate policy and management issues compared to preferred shareholders.
Shares
A share is the single smallest denomination of a company's stock. So if you're divvying up stock and referring to specific characteristics, the proper word to use is shares.
Technically speaking, shares represent units of stock.
Common and preferred refer to different classes of a company's stock. They carry different rights and privileges, and trade at different prices. Common shareholders are allowed to vote on company referenda and personnel, for example. Preferred shareholders do not possess voting rights, but on the other hand, they have priority in getting repaid if the company goes bankrupt. Both types of shares may pay dividends, but those in the preferred class are guaranteed to be paid first if a dividend is declared.
Common and preferred are the two main forms of stock shares; however, it is also possible for companies to customize different classes of stock to fit the needs of their investors. The different classes of shares, often designated simply as "A," "B," and so on, are given different voting rights. For example, one class of shares would be held by a select group who are given perhaps five votes per share, while a second class would be issued to the majority of investors who are given just one vote per share.
Shares or Stocks?
The interchangeability of the terms stocks and shares applies mainly to American English. The two words still carry considerable distinctions in other languages. In India, for example, as per that country's Companies Act of 2013, a share is the smallest unit into which the company’s capital is divided, representing the ownership of the shareholders in the company, and can be only partially paid up. A stock, on the other hand, is a collection of shares of a member, converted into a single fund, that is fully paid up.
UK vs US
In British English, "shares" is more commonly used than stocks, especially when talking about individual listed companies. In American English, "stocks" is more commonly used.
In either the UK or US, however, there is no practical difference between the terms stocks and shares.
Are shares and stocks the same thing?
For all intents and purposes, yes. Both shares and stocks refer to equity ownership in corporations, and owners can be referred to as either shareholders or stockholders.
How can I buy shares or stocks?
To buy shares or stocks, you will need to open a brokerage account with a licensed broker-dealer who can execute your orders on the stock exchange. You will also need to have enough funds in your account to cover the cost of your purchase and any fees or commissions charged by your broker. You can then research and select the shares or stocks that you want to buy, and place your order through your broker’s platform. You can buy shares or stocks at the current market price (a market order) or at a specified price (a limit order). Once your order is filled, you will receive a confirmation and your shares or stocks will be held in your account.
What is the origin of the word "shares" in finance?
The word shares comes from the Old English scearu, which means “a cutting, shearing, division” or “a part or division." The word shares was used to refer to the portions of ownership in a company or a financial instrument since the late 16th century, and is so called because the shareholder owns a part or division of that company or investment.
What is the origin of the word "stocks" in finance?
The word stock comes from the Old English stocc, which means “stump, post, stake, tree trunk, or log." It is derived from the Proto-Germanic stauk-, which means “tree trunk or stalk" The word stock was used to refer to the equity instruments that represent ownership in a corporation or similar entity since the early 17th century, but the exact reason why it was used to refer to equity ownership is unclear. It could be the idea of a tree's "trunk" from which gains are an outgrowth, or it could derive froman obsolete use of the word stocc as a "money-box."
The Bottom Line
Shares and stocks are terms that are often used interchangeably to refer to the equity instruments that represent ownership in a corporation or similar entity. However, there are some subtle differences between them depending on the context, geography and culture (e.g., "shares" is used colloquially in the UK while "stocks" is far more common in the US). Shares is a more specific term that can refer to the ownership of a particular company or a type of financial instrument, while stocks is a more generic term that can refer to a slice of ownership of one or more companies or a collection of investor holdings or a portfolio. The words also have some other meanings that are related to their original senses of division and trunk. Shares and stocks are both important concepts for investors who want to participate in the equity market and benefit from its potential returns and risks.
