What are shares

For most people the first port of call is to invest in company shares, though the share market is not actually the most popular form of investment – that title goes to the foreign exchange market with close to $2 trillion traded daily.

The first question you may ask is ‘What is the difference between stocks, shares, equities, securities and holdings? In fact, they are all different terms for the same thing - company shares. Shares entitle you to a 'share' of a company's assets and earnings as well as the right to vote on company matters.

Some companies stay private, others choose to list on the stock exchange. When companies list on the market, they are in effect raising money via the public, i.e. you and me, in order to do this they must issue a prospectus which sets out what investors needs to know to make informed decisions about investing in the company. Offering shares to the public for the first time is called an Initial Public Offering (IPO). This process is known as 'flotation' and 'going public'.

IPOs are carried out for two main reasons; the directors may want to raise capital or they may want to allow some of the principal investors to realise the value of their initial investments. When shares are offered to the public, it is via stock market investment. Only the shares offered to the public are traded on the stock market and sometimes large holdings in public companies are not traded. The amount of shares available to buy on the stock market is called the free float, or sometimes just float. When already on the stock exchange or listed, a company can raise more money (or sell off existing shares) by doing follow-on deals.