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What are shares?
What are shares?
31 May 2022#Private Banking

What are shares?

Among the various useful tools for trading in the financial markets are shares.
Let's find out!

Shares are one of the instruments of participation in the ownership of a company. Specifically, a share represents the minimum portion into which the capital of a particular type of company (called a "joint stock company") is divided, and therefore they represent a portion of a company's capital that allows investors to become owners of a part of it.

Through the purchase of a single share, one becomes an owner of the company, albeit for a very small fraction. In this way, one becomes part of the company's share capital and acquires certain economic-financial rights, such as the possibility of receiving dividends if decided by management, and administrative rights, for example, exercising voting rights at the various meetings reserved for shareholders, thus influencing the company's decisions.

Why buy stocks?

Buying stocks can be a way to invest one's savings in the financial markets in an instrument whose return is variable depending on the company's performance.

Stocks offer investors the opportunity to make investment decisions in line with their strategies or according to their risk tolerance.

The different types of shares

Shares are debt securities, that is, instruments that embody a right that can be transferred to another person.

Ordinary shares give the holders equal rights, including the right to vote at shareholders' meetings. In addition to these, however, there are other categories of shares such as:

  • preferred shares: they confer special privileges (additional returns when dividends are allocated or right of first refusal in the distribution of assets in the event of liquidation) but limit voting rights to extraordinary meetings only;
  • savings shares: they confer certain economic benefits (in the distribution of profits and repayment of capital) but prevent participation and voting at company meetings. By law they are the only shares that can be "bearer" shares;
  • dividend shares: they do not give the right to vote at meetings but allow participation in the distribution of profits remaining after payment to ordinary shares;
  • shares with increased and multiple voting rights: with the same par value as other shares issued by the same company, they confer a greater number of votes at shareholders' meetings.

Shares may also be:

  • listed: trading (buying and selling) of securities takes place in the financial market;
  • unlisted: trading usually takes place directly through private agreements between shareholders, which can make their purchase and sale more complicated.

Primary and Secondary Market

The main purpose of the stock market (which goes by the name of the stock exchange) is to bring together the demand for capital, represented by companies that need to finance their business, and the supply of capital, given by investors who want to deploy their savings.

A company's shares can be bought in either the primary or secondary market:

  • Primary market refers to that market in which a stock is offered for the first time through an initial public offering (IPO). Through this procedure, the company in question is admitted to the regulated market for listing.
  • Secondary market, on the other hand, refers to the place where securities are already free to circulate and be traded among investors. The meeting of supply and demand also determines the movement of a security's price over time: if there is a lot of demand, and therefore a lot of interest from investors, the price goes up, otherwise in case of an oversupply, it goes down.