What are shares?

If you want to profit from a company’s performance, then trading shares is the way to do it. We explain what they are and the key things you need to know.

Amazon, HSBC, Rolls Royce, BP, Microsoft – examples of famous companies whose shares are traded on stock exchanges around the world.

But what is a share?

A share is simply a unit of ownership in a company. If you own a share then you own a part of that company.

For example, if a company issues 10,000 shares and you buy 100, then you own 1% of that company. If the company performs well, then the share price will rise. If it performs badly, then the share price will fall.

Can I trade shares in any company?

No. You can only trade publicly available shares in companies that have floated on the stock market. When this happens, it is known as an initial public offering (IPO) and the company is regarded as a ‘public company'.

What's the difference between stocks and shares?

The two terms often used interchangeably with each other.

  • Shares refer to ownership in a specific company
  • Stocks refer to ownership in general terms

It's worth noting that shares are also known as equities.

A major reason why companies decide to go public is to generate massive investment. This is because when you buy a share, the company receives that money in exchange for your ownership in it.

For example, when Facebook (now Meta) went public, it made a historic $16 billion.*

*Source: Forbes, 2012: Facebook Raises $16 Billion in Historic IPO

Public vs private

However, despite the lure of major investment, many large companies choose to remain private.

Private companies are not listed on stock exchanges. However, they can still offer shares privately e.g. to its employees and select investors.

The advantages of remaining private are:

  • The risk of an IPO – a lot of time, effort and cost goes into an IPO and there’s always the danger that the shares might not sell
  • Lower reporting standards – in America, the US Securities and Exchange Commission (SEC) demands that public companies produce annual reports and are independently audited
  • Loss of control – private companies don’t answer to shareholders and can keep their business plans under wraps

Examples of big private companies include Deloitte, Subway, Huawai, Aldi, and Bosch.

Where are shares traded?

Shares are traded on stock exchanges. The role of an exchange is to provide a safe and regulated environment where shares can be traded, and to ensure that companies listed on the exchange meet strict corporate governance standards.

Exchange opening times

Stock exchanges are not open 24/7. They have opening and closing times. Keep in mind the different time zones because you can’t trade a share if the exchange is closed.

Ring the bells!

The ringing of the New York Stock Exchange bell is a notable even, with Ronald Regan and Sylvester Stallone as some of the most famous people to open the exchange.

New York Stock Exchange (NYSE)

Open Mon-Fri, 9.30am – 4pm (EST) 

Founded in 1792, the NYSE is the largest stock exchange by market capitalisation the world – greater than the NASDAQ, London Stock Exchange and Tokyo Stock Exchange combined.*

Notable companies listed on the exchange are Alibaba, Johnson & Johnson and Wal-Mart.

NASDAQ

Open Mon-Fri, 9.30am – 4pm (EST) 

Located in New York, the NASDAQ (National Association of Securities Dealers Automated Quotations) is the second biggest exchange in the world.

It is a tech-focused exchange and includes such giants as Apple, Amazon, Intel, Cisco and Microsoft.

London Stock Exchange (LSE)

Open Mon-Fri, 8am – 4.40pm (GMT) 

First founded in 1698 as the Royal Exchange, the London Stock Exchange is the largest exchange in Europe.

Listed companies include Unilever, BP, GlaxoSmithKline, HSBC and Royal Dutch Shell.

Tokyo Stock Exchange

Open 9am – 11.30am then 12.30pm – 3.00pm (JST)

Founded in 1878, the Tokyo Stock Exchange is the largest in Asia. Listed companies on the exchange include Sony, Toyota and SoftBank.

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*Statistica, Largest stock exchange operators, listed by market cap of listed companies 2020