The terms “shares” and “stocks” are often used interchangeably. This is understandable. Most people use them interchangeably due to conventions and for simplification purposes. However, from a more technical standpoint, there is a difference between the two.

What is the Difference Between Shares and Stocks: A Definitive Explainer

Reasons for Interchangeability

There are a couple of reasons why shares and stocks are frequently used interchangeably. The first is the historical context. Stock certificates were issued as physical pieces of paper that are called shares of stocks. This makes the term “share” a preferred short form of stock certificates. Some people often use the term “stock” to actually refer to a share. The interchangeability of these two terms has become ingrained in casual conversations.

It is also worth noting that some financial professionals like brokers and traders often use stocks to refer to companies that are publicly traded in the stock market. This usage also promotes the idea that investing in stocks denotes owning shares of the issuing companies. The preference toward the term has also influenced media reporting and further trickled down to the public. This is another reason why the two terms have become interchangeable.

Some regions like the United Kingdom also often use the term “shares” while countries like the United States use “stocks” as the preferred term to represent investing in or ownership of a particular publicly traded company. Most casual investors also do not mind interchanging the two terms or drawing a clearer distinction between the two.

Explaining Shares vs Stocks

However, from a more technical standpoint and for the purpose of preciseness, there is a difference between shares and stocks. There are groups that emphasize the importance of understanding the stark difference between the two to ensure clarity in financial communication. These include companies, most financial professionals, trained journalists, and several experienced investors and traders. Below are the exact definitions of the two:

• Shares: A share is an individual unit of ownership in a specific corporation. It is specifically a unit of equity ownership in the capital stock of a corporation. This means that purchasing and owning a specified number of shares implies a claim on a portion of the assets and profits of the issuing company.

• Stocks: A stock is a more general term. It can represent an actual corporation that trades its shares on the stock market. Furthermore, when used to denote a type of financial security issued by a corporation, it is also called capital stock. It can also be used to represent an investment portfolio of different stocks.

Consider using pizza as an analogy to better explain the difference between shares and stocks. A particular stock represents a whole pizza which can be divided into several slices or shares. Investors can own a single slice or multiple slices of pizza. The amount of slices a particular investor owns represents the amount of shares he or she has. An investor who owns more slices is called the majority shareholder of a stock or a company.

It is also important to draw the distinction between shareholders and stockholders. Both are often used interchangeably in modern communication. However, from a more technical standpoint, the term “shareholder” is more precise than “stockholder” and it refers to an individual or entity that owns shares in a company regardless if it is a private or public company. The term is also used in most documents like annual reports and investor communications.

Nevertheless, in summarizing the difference between shares and stocks, the former refers to a unit of ownership while the latter can either represent an actual corporation or the financial security that it issues. Note that tech companies like Apple or Amazon are also called tech stocks. Furthermore, when used to refer to a type of security, the term “stock” is often used to refer to equity and the different types of equities that a corporation issues.

An investor who has invested in or bought a stock of a particular corporation from a trading platform or stock broker is essentially purchasing a share. The number of shares he or she owns and holds is determined by how much he or she has purchased based on the stock price. The stock price is the value of each share. For example, if a corporation trades its stock at $100.00 and an investor invests $300.00, he or she has purchased and now owns three shares.