What are stocks, shares and equities?

What’s on this page?

1. What are stocks, shares and equities?
2. How do stocks, shares and equities work?
3. Why trade or invest in shares?
4. How to trade and invest in shares with us
5. What are the risks of trading or investing in shares?

What are stocks, shares and equities?

Stocks, shares and equities are terms used to describe units of ownership in one or more companies. The terms are often used interchangeably, but there are some technical differences between stocks, shares and equities that can cause confusion.

• ‘Stocks’ is generally used to refer to portions of ownership of multiple companies. For example, you could say that you own stock in Amazon and Microsoft
• ‘Shares’ usually refers to units of ownership in a specific company. For example, you could say that you own ten Amazon shares
• ‘Equity’ is the term for a total ownership stake in the company. For example, if a company has 10,000 shares available and you own 1,000 of them, you hold a 10% equity stake in that company

How do stocks, shares and equities work?

Stocks, shares and equities work by giving you part-ownership of a company and direct exposure to its performance. Shares will generally rise in value when the company is doing well and fall in value when the company is doing poorly.

Stock exchanges facilitate the exchange of shares in publicly listed companies. There are a few ways for a company to go public, but the more traditional and most common is for the company to hold an initial public offering (IPO).

Why do companies list on the stock market?

Companies list on the stock market mainly to raise capital by selling their shares to institutional or retail investors. Institutional investors are entities like investment funds or banks, while retail investors are everyday people.

Most companies will list on a domestic exchange. For example, in Australia, most shares are listed on the Australian Securities Exchange (ASX), known on our platform as the Australia 200. That said, it’s becoming increasingly common for companies to have multiple listings to take advantage of foreign direct investment (FDI).  

How many shares can a company have?

The minimum number of shares that a company can issue is one – this could be the case when there’s only one owner of the entire company. However, there’s no universal maximum for how many shares a company will issue, so this can vary from company to company.

The number of available shares can also change over time as companies issue more shares or buy back shares from its investors.

What are the types of shares?

There are two types of shares that can be listed on an exchange: common and preferred. Common shares are the variety that grants voting rights at shareholders’ meetings and dividend payments. Preferred shares generally don’t come with voting rights, but the shareholders will have a better claim to earnings than common shareholders.

How much is a share worth?

Different shares are worth different amounts of money. A share’s value will vary depending on whether you’re looking at its fair value or its market value. The fair value is the intrinsic value of shares based on the company’s fundamentals, while the market value is the amount that individuals are currently willing to pay for the shares.

The fair value of shares is often much lower than the market value as the latter is heavily influenced by demand, which doesn’t always reflect the company’s fundamentals. If the demand for a share goes up while the supply remains constant, the share price will rise as people are willing to pay more.

Learn more about what moves share prices

Why trade or invest in shares?

You might trade or invest in shares to gain exposure to global economic stability and growth or individual companies. Your decision to invest in shares or trade on their price movements will depend on whether you want long-term or short-term exposure – and whether or not you want to own any assets.

Why invest in shares?

You would invest in shares in the hopes of generating longer-term returns. If a company grows and becomes more valuable, it's likely that the value of its shares will also rise. 

Investing in shares means you’ll go long on a company’s share price – so, you’d only profit if the shares increase in value and you sell them. However, there’s the potential to receive dividend payments, even if the company’s share price is falling. You can choose to receive the returns from these dividends as income or to reinvest them to benefit from compounding interest.

Note that, because investments can rise or fall in value, you can get back less than you initially invested if the company share price falls and you close your position.

Ready to start investing in shares? Open a share trading account

Why trade on share price movements?

Trading on share price movements enables you to go long or short – giving you the potential to profit from market prices that are both rising and falling. This is because you’ll trade using leveraged derivatives, which means you don’t take direct ownership of the underlying shares. 

Trading is usually favoured by people who are looking to take a short-term position on a company’s share price – perhaps during periods of increased volatility or market activity.

When you trade shares via leveraged products like contracts for difference (CFDs), you’ll only need to put down a deposit – known as margin – to get full market exposure. This is one of the benefits of trading on shares, as it means less money is required upfront. Note, however, that this also carries high risk, because any profit or loss is calculated from the full position size, not just the margin required to open it.

With CFDs, you can lose more than you deposit, you do not have ownership in the underlying asset, and you may be subject to margin close-outs if you do not maintain sufficient margin.

Want to trade on shares? Open a CFD trading account

How to trade and invest in shares with us

Share trading

If you want to invest in shares (buy and own them)¹, you can open a share trading account with us. We offer 11,000 local and international shares and ETFs. You can buy US, UK and Australian shares commission-free² (0.7% FX fee applies to international trades)

Buying shares

1. Create or log in to your share trading account and go to our trading platform
2. Search for the company's name
3. Select 'buy' in the deal ticket
4. Choose the number of shares you want to buy
5. Confirm your purchase and monitor your investment

Selling shares

1. Log in to your share trading account and go to our platform
2. Search for the company's name
3. Select 'sell' in the deal ticket
4. Enter the number of shares you want to sell
5. Confirm the sale 

Learn more about share trading

CFD trading

If you want to trade on share price movements, you can open a CFD trading account with us – Australia's No.1 CFD provider.³ We offer 11,000 local and international shares to choose from. You can also trade pre- and post-market with our extended hours on key US stocks. 

If you’re not comfortable trading in a live environment yet, you can open a demo CFD trading account to practise trading shares.

Going long on shares (buying)

1. Create or log in to your CFD trading account
2. Search for the shares you want to buy
3. Select 'buy' in the deal ticket
4. Choose your position size and manage your risk
5. Open and monitor your trade

Going short on shares (selling)

1. Create or log in to your CFD trading account
2. Search for the shares you want to sell
3. Select 'sell' in the deal ticket
4. Choose your position size and manage your risk
5. Open and monitor your trade

Learn more about share CFD trading

What are the risks of trading or investing in shares?

Risks of buying shares outright

The main risk involved in buying shares is losing your initial outlay. This can happen if the company you’re invested in goes bankrupt or if its share price falls to zero. With share trading, this is always the most you stand to lose. For example, if you invested $1,000, the most you could is $1,000.

The risk of a short-term decline in share prices can be offset by hedging your investments with short positions using leveraged derivatives. You can also diversify your holdings by investing in or speculating on the price of exchange traded funds (ETFs) – these are baskets of stocks that track the performance of more than one company at once.

Risks of trading shares on leverage

The risks posed by trading share CFDs are significantly different due to leverage. When you trade on margin, both your profits and losses are calculated on the full value of your position, rather than this initial outlay. 

This means that although you have the possibility of magnifying your profits, your losses will also be amplified. Also, if you decide to short a share, you’d be open to an unlimited downside potential. As, in theory, there’s no limit to how much the share price could rise by.

However, there are tools that you can use to manage this risk. For example, stop-losses enable you to define their exit point for trades that move against them, while limit orders will close a trade after the market moves by a certain amount in your favour.

With CFDs, you can lose more than you deposit, you do not have ownership in the underlying asset, and you may be subject to margin close-outs if you do not maintain sufficient margin.