What Are Shares? The Difference Between Shares and Stocks
Shares is one of the most common terms in investing, but how does it work? Understanding how to use shares is crucial for an investor willing to make profit on the stock market. In this article we’ll explain the types of shares and break down the differences between shares and stocks.
What Are Shares?
Shares represent units of ownership in a company. Companies issue shares to gain money to expand, raise additional capital for operation or repay debt. They usually sell their shares to institutional investors (banks or brokers) who in turn sell these shares to retail investors. When you buy a share, you become a shareholder (a partial owner of that company) and in return get certain privileges (they may vary depending on the type of stock):
Difference between stocks and shares
Sometimes investors use these terms interchangeably, but they are not the same.
A stock is an equity instrument issued by a company, it represents a part of it. It can also refer to units of mutual funds, limited partnerships, and real estate investment trusts. A share is one unit of that ownership, so “stock” is a broader term than “share”.
Issuing and regulation of shares
To offer shares to anyone who wants to buy them on a stock exchange, a company has to go public via IPO (Initial Public Offering). Before an IPO, a company is private (owned by founders and a small group of investors). For example, when Facebook (now Meta) went public in 2012, it sold shares to the public to raise billions of dollars for growth. Once shares are listed, people trade them on stock exchanges like the New York Stock Exchange (NYSE) or NASDAQ.
Regulation of the stock market is necessary to ensure transparency and fair trading. It requires companies to publish financial reports on a regular basis and inform investors of big changes (like mergers, for example).
Note: always make sure that the broker you work with is regulated.
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Types of shares
Every company can issue stock, but publicly traded companies divide it into two types. These types come with different rights and privileges.
Common stock
This is the most common type of shares. Owning the company’s stock, you have the opportunity to earn money through capital gains alone, given that the company performs well. Shareholders have:
voting rights (shareholders have a say in specific company decisions, may take part in electing board members, influence the company's future and financial policy);
an opportunity to receive dividends (if the company pays them);
last claim on assets if the company liquidates.
Preferred stock
Compared to common stock, preferred stock typically does not significantly increase a company's market value or voting power. However, equity shares usually have established payout criteria, such as regularly scheduled dividends, which makes them less risky than common stock. Preferred stock shareholders have:
regularly scheduled dividends (paid before common shareholders), which makes them less risky than common stock;
usually no voting power;
higher claim on assets in case of liquidation (preferred shareholders get paid first, but after bondholders. This priority further reduces the risk compared to common stock).
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Benefits of Owning Shares
You can profit significantly by buying shares, though it comes with certain risks.
1. Capital gains: buy low, sell high
If the share price rises, you can earn money. For example, you’ve bought 100 shares of Trinity Capital Inc. (TRIN) at $15 each. That’s a $1,500 investment. If the company performs well and the price increases to $18, your shares are now worth $1,800.
2. Dividends: get regular passive income
Some companies pay part of their profits, or dividends, to shareholders. It’s a perfect opportunity to get a reliable source of regular passive income. Dividends can be paid annually, quarterly (most common period) or monthly.
For example, you own Hafnia Limited shares. It offers a dividend yield of 3.37%, which means that for every $100 you invested in the shares, you would receive $3.37 in dividends per year.
Note: high dividend yield is appealing as it offers more profit, but it’s important to understand the reasons behind it. Sometimes a falling stock price results in high yield, which might signal about some problems in the business.
3. Ownership and voting
As we noted earlier, one of the benefits of owning shares is that you can vote on key decisions, like electing the board of directors. You’re not just an investor — you’re a co-owner.
4. Liquidity
Shares are easy to buy and sell, and traders need speed. Day traders or scalpers, who hold positions for minutes or hours, especially need to be able to sell or buy instantly.
Stocks also have tighter bid-ask spreads (the difference between the buying and selling price) than less liquid assets. That means you lose less money on each trade. And, finally, high liquidity reduces the risk of slippage (when your order fills at a worse price than expected).
5. Diversification
The first and foremost rule of any investor: don’t put all the eggs in one basket. Spreading your money across many sectors (tech, energy, finance, and others) reduces risk significantly. If one sector drops, the others might stay strong.
How can I buy shares?
Buying shares is easy, just follow these steps:
open an account with a licensed broker;
add money to that account;
find the company you want to invest in and find its ticker symbol (like AAPL for Apple);
purchase through an app or a terminal.
Also we broke down stock investments in our article “How to Invest in Stocks in 2025: a Beginner's Guide on How to Buy and Sell Stocks”.
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