What are stocks, shares and equities?

Last updated: 14.10.2021
Richard Morrish
Author:
Richard Morrish
Adviser
CFD & Trading
Experience
> 30 years

If you have been exposed to the world of online trading at all, you have surely wondered what a stock is. The term gets mentioned frequently by investors and within most media outlets that discuss the topic of online trading.

In order to help any newcomers to the industry and to inform our own customers, we have put together this comprehensive online learning service to serve as your one stop information resource. You will find just about every aspect of the online trading world covered right here with nextmarkets. Let’s get started with one of the most common questions, ‘what are stocks?’.

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nextmarkets investors

  • Understanding stocks
  • What are shares
  • What are equities
  • The various forms of stock trading
  • Identifying your markets
  • Researching your opportunities
  • Choosing a broker
  • Conclusion

Understanding stocks

Before you can consider investing your money into the stock market, you will need to have a solid understanding of exactly what you are spending your money on. Many customers simply see the success of others on the stock market and decide to invest without having any knowledge of exactly what they are trading. A stock represents a fraction of ownership in a business or corporation. To put it simply, when you buy a certain amount of stocks, you are essentially buying a portion of the business that you are looking to invest in.

These stocks entitle you to reap the benefits of the profits and actual value of the company itself. With the value of companies changing just about every day, so too will the price of the stock that you are looking to buy. Stocks work on a supply and demand basis, so they are finite within each company. If you are looking to buy a certain amount of stock with a company, you will need to pay the price that stock owners are willing to sell theirs for. This results in a constantly changing price of company stocks and gives rise to what we call the stock market.

There are two ways that you can look at making some gains with stocks. You can either invest in the stock price of a certain company or you can rely on the dividends that certain stocks pay out. Dividends are a portion of the company’s quarterly revenue that gets paid to all stock owners, relative to how much stock they own. Most traders on the market rely solely on the appreciation of value of the stock they are looking to purchase. With the supply and demand structure, if a company promises growth and starts performing well, then the current stock owners are less inclined to let go of their stocks hoping that they will increase in value. This pushes up the price of the company stock and allows all shareholders to benefit as interested customers begin to pay more and more for the stock they are looking to buy.

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What are shares

The original definition of shares was to represent units of stock. To understand the fundamental definition of a share, it is a unit of ownership of a specific company’s equity. We will run through what equities are in the next section but the basic understanding mentioned in stocks is also applicable here. If you have purchased shares of a specific company, you are entitled to receive a portion of their dividends if they choose to pay out dividends, some stock options don’t but most do. To take a look at some of the best options on the market, head to our best stocks to buy page.

Just about every company has shares but the ones that you will be transacting with are all for companies that have decided to publicly trade on a certain stock exchange. Usually, shares in a company will be split between the founder, co-founders and investors of that company, when a company decides to go public, they are essentially putting a portion of the company up for sale to the general public. If you are interested in how you can go about buying some of these shares, head to our how to buy stocks page.

What are equities

Both stocks and shares will refer to units of equity that you will have of the corporation you are investing in. To understand stocks and shares, we will also need to run through what exactly are equities. In general accounting terms, equity is referred to as the monetary value of the assets that a company has, minus its liabilities. Assets include just about everything that adds value to a company, it is any resource  that is owned or controlled by the company itself. There are plenty of different categories of assets but to simplify it all, let us just imagine that assets refers to all the money and property of a company. Liabilities would be all of the debts and obligations that the specific company is entitled to pay.

Once we subtract the liability value from the asset value, we determine the relevant equity value. Understanding equity is important as it is a numerical indicator of what percentage of the company you are entitled to receive. Your equity will commonly be referred to as your stake in the company that you have decided to invest in. To take a look at some of the best stock options out there, head to our buy Tesla stock, buy Apple stock or buy Facebook stock pages where we take a close look at each of these investment options.

The various forms of stock trading

When you have completed the necessary research to begin stock trading, you will see plenty of abbreviations which will be used in reference to the stocks you are looking to purchase. You will need to know exactly what all of these abbreviations mean before you can commit to investing your money into them. Just about all of these transaction mechanisms will be in the form of a contract detailing the sale of the relevant asset.

CFDs

Contract for differences, or CFDs, are an arrangement made between brokers and customers that entitle the customer to receive the difference in price value between open and closing price value. This means that the customer will not have individual ownership of the asset itself but will rather enter an arrangement to pay, or receive, the difference in price from opening the contract to settling the contract.

ETFs

Exchange traded funds, or ETFs, is a security that tracks a relevant asset, commodity or index and can be bought and sold just like typical stocks. ETFs are not stocks or shares but they behave about the same. An ETF provides anyone the opportunity to trade a pool of commodities, bonds and even stocks. 

Options

Options refers to the option you are given to buy or sell a specific stock at a defined price, on a set date. There are two types of options that you will come across, puts and calls. A put is the decision made by the customer assuming the price of the relevant stock will fall by the time the specific date arrives. A call is the opposite, this is the customer predicting the value of the stock to rise when the given date is reached.

Futures

Futures are similar to options, a predetermined date and price is set, but here the buyer is obligated to buy and the seller obligated to sell. This allows traders to speculate on prices of different stock options and it also serves as the basis of most hedging that is done within the industry. Futures and options can be powerful tools if used correctly and we recommend researching some strategies before committing to the instruments.

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Identifying your markets

With a solid understanding of what stocks are and the variety of forms that they come in, you will then need to begin the process of identifying markets that you are interested in trading. This will be specific to each reader out there as you are always recommended to remain within your area of expertise. If you follow foreign news fairly closely, you might want to consider forex trading as you invest in foreign currencies opposed to one another. Plenty of customers end up investing on the stock markets and this can be fairly risky if you are simply investing in the first opportunity that you come across.

If you intend on trading stocks, research some corporations that are publicly listed within your areas of interest and determine how their stock price is performing. This should serve as a reliable indicator of the investment potential of the company. You might have some insider information regarding your professional industry and this could line you up to making a solid stock price prediction.

Researching your opportunities

Once you have identified the options you are considering investing in, it is important to conduct the necessary research of those markets. You might find that your preferred investment choice is currently at an all-time high in terms of stock price and this is usually not the best time to buy. That being said, the company may simply be experiencing constant growth and you might want to invest in the future potential. You will need to research these opportunities thoroughly to try and avoid any potential losses. If you are considering making use of exchange traded funds, head to our what are ETFs page to take a look at the securities and how they are used.

Choosing a broker

When you have finished identifying your investment opportunities and done the research to realize that it is the right time to buy, you will need to consider which online broker to use to purchase the stocks. There are plenty of brokers out there and you can make use of our reviews to find all of the details surrounding each of their services. Be sure to check out our page right here at nextmarkets, we offer an online trading service with zero fees. You will also be able to access over 8000 different stock options while having a team of industry experts offering you advice each month. Head to our page now to find out more.

Conclusion

By now, you should have a thorough understanding of exactly what a stock is and why it has the potential to be a very powerful investment. Our team has also put together thorough descriptions of what shares are as well as equities. You will need to keep these definitions in mind when you are looking to trade any stocks. You will also need to research exactly what trading instrument you are using to trade stocks, each of them have their own agreement structure and it is important to understand exactly what it is you are investing in.

Finally, take the time to identify your markets and research the opportunities that are available with each of them. This should increase your chances of making an informed decision regarding the stocks you are purchasing. Keep our broker offer in mind when you decide to buy stocks online, we have a service that is a cut above the rest within the online trading industry.

What are stocks FAQ

❓ What are stocks?

If you are interested in the stock market, you will need to become familiar with the term. Understanding exactly what a stock is will provide you with an invaluable insight into the industry and could prove to be the information you need to make an accurate price prediction. Our information service has been put together to help inform anyone interested in getting involved with online stock trading and you can find all of the information available on our site. Be sure to head to our page to find out more.

🤝 What are stocks options?

For all customers interested in trading on the stock market, you need to have a comprehensive understanding of the market and the various means of trading that are made available to customers. Stock options are one of the various methods of trading,  understanding exactly what it means would take more than the space that we have available here. Head to our page to find our in-depth information resource where we take a thorough look at stock options, what they are, how they are used and how you can get involved with the scene in general. Head to our page now to find out more.

🏛️ What is the difference between stocks vs shares?

You have definitely come across one or the other if you have been reading about the stock market in general. These terms are mentioned frequently throughout the financial industry and if you are looking to buy and sell them, you will need to know exactly what each of them are and what the difference is between them. Our expert team has put together informative articles and guides to help you along your journey through the world of online trading. Head to our page now to find all the information that you will need to get started.

🖥️ Can I buy stocks online?

Trading of stocks has been around for a remarkably long time and with all the technological progressions that have been made over the past century, the industry is evolving into an online format. That doesn’t mean that you can buy stocks anywhere, our pages here at nextmarkets serve to inform you about the world of online stock trading, where you can do it, how you can do it and what you will need to get started. If you are looking to buy stocks, head to our page now and browse through some of our articles and guides before you head into the industry blindly.

🙋 How do I sign up to buy stocks?

Depending on where you are looking at buying stocks, you will need to share a number of details and documents to get your career started. This depends on the broker that you are looking to sign up with and each of their offers will differ significantly. With differing offers, comes different requirements that will need to be met before you are able to transact within their service. Our articles and guides have been put together to make the entire process easier for you. Head to our page now to find out all you will need to know to get started within the world of online trading.

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