For a vast majority of the English-speaking world, the terms shares and stocks are used to describe a corporate equity offering. Each is commonly viewed as being synonymous with the other, referring to a portion of a company's pledged debt obligations.
Despite the perceived similarities between shares and stocks, there are some key differences. Working definitions, usage and practical applications are three areas where the functionality of one term is unique from the other.
The financial definitions of shares and stocks are similar. However, depending upon the source, the precise verbiage included in each explanation may vary. As an example, the world's second largest equities exchange, the NASDAQ, defines each term as follows:
- Shares: Certificates or book entries representing ownership in a corporation or similar entity.
- Stock: Ownership of a corporation indicated by shares, which represent a piece of the corporation's assets and earnings.
The NASDAQ's annotations in this area are a bit counterintuitive, as neither the word "stocks" nor "share" are defined within its glossary in isolation. At first glance, this appears to be simple semantics; upon further review, it is the crux of the difference between stocks and shares. Below is a key point that illustrates the technical discrepancy between the two terms:
- Shares are the smallest increments of a publicly-traded corporate listing.
- Stocks are the actual ownership rights, the scope of which is determined by the number of shares.
In practice, shares are the measurement device used to illustrate how large of a stake one has in an individual company, mutual fund or electronically traded fund (ETF). The term may also be used in the plural form, as one is able to purchase shares in many different companies. In most cases, stocks allude to a collection of investor holdings or a portfolio, comprised of shares.
From a practical standpoint, the term stocks is used regularly by most in the market. It is not uncommon to hear equities investors talk about stocks informally, such as in the questions "Are stocks a good investment?" or "What stocks should I buy?" These phrases suggest a general tone and may be answered from a singular, sectoral or broader equities perspective.
Conversely, shares is typically viewed as being a more formal word, insinuating measurement and specificity. The same basic inquiries of "Are shares a good investment?" and "What shares should I buy?" allude to individual corporate offerings, not the broader meaning suggested by stocks. If asked these questions, one is likely to go into greater depth in providing viable answers.
While the meanings of the terms shares and stocks are similar, there is considerable nuance in how each is used. Below are a few elements that influence context:
Where you reside is a key element of when and how shares or stocks is implemented. In the United States, stocks is frequently used in general equities discussion, while shares is more common internationally. However, no matter where you're located, to buy a stock or stocks, you must indicate an exact number of shares.
Individuals local to the financial and investment industry are typically aware of the intricacies involved with the terms stocks and shares. These people speak in more precise terms, as it is their business. However, for those on the outside or only moderately involved, stocks and shares are often swapped at random.
The role one plays in the markets is a key part of whether the term stocks or shares is used more frequently in everyday situations. As an example, analysts typically use stocks as a reference to the entire, individual or sectoral equities market. On the other hand, stockbrokers are prone to use the term shares more often as placing orders for clients demands a high degree of specificity. Outside of order-entry, individual investors typically use both words interchangeably at their leisure.
Geography, culture and industry standing largely dictate any variations in the use of stocks and shares. Therefore, it stands to reason that a London-based broker is likely to use the terms with a very different connotation than an investor from eastern Turkey or the U.S. midwest. Simply put, the role that shares and stocks are likely to play in your financial lexicon will largely depend upon who you are, where you are from and your place in the markets.
Functional Applications Of Shares And Stocks
The area where the differences between shares and stocks is most obvious is in the functional application of each term. While the two words are synonymous to many, their correct usage is imperative to successfully completing the order-entry process.
To illustrate this point, take the following dialogue between an aggressive technology equities investor and commissioned broker:
- Investor: "I would like to add several tech stocks to my portfolio."
- Broker:"Which stocks?"
- Investor: "Apple (AAPL) and Facebook (FB)."
- Broker:"How many shares of each?"
- Investor:"10,000 AAPL and 15,000 FB."
Although above dialogue is simple (and a massive cash investment north of £2 million!) it illustrates the contrast between shares and stocks. Stocks is the descriptor and shares is the quantifier.
In the modern arena of online stock trading, you can purchase shares of corporate stocks exclusively online. This eliminates the need for verbal queues, but it still requires that you understand that shares mean quantity and stocks refer to the product in question.
The primary difference between shares and stocks is specificity. The term stocks is typically used as a general reference to the equities markets and related products. On the other hand, shares is frequently utilised as a unit of measure.
Of course, when reciting almost any financial term, context is everything. In common parlance, stocks and shares are typically interchangeable—and there is nothing wrong with that. However, when it comes to placing market orders or speaking within the capacity of a financial professional, mastering the two terms is a must.
Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…