Stocks, shares, and equities: for beginner traders, it may seem like these terms are bandied around interchangeably, but there is a difference. It is very simple.
What are shares? “Shares” are the division of ownership in a company. When you own shares in a company, you share a proportional profit of that company. What are equities? “Stocks” or “equities” are the collective terms for shares. You can talk about your shares (specific slices of companies) or stocks (ownerships in companies in general).
Stocks vs Shares
Think of it like this: you have a shiny new red car. Separately, the vehicle can be divided into paneling, mirrors, seats, an engine, etc. These are the “shares.” Once assembled into your polished ride, they are the “stock” or “equity” representing the fleet of vehicles in which you have invested.
Public and Private Shares
When you purchase a share, you now own a part (however small) of that company. There are public and private shares. Unlike public shares, privately held shares are not traded on the stock market. You can invest in public companies because they offer shares of their stock to any investor with the capital. Private companies will be owned by a single shareholder or a group of private investors. No surprises there!
Occasionally, a private company will go public using an initial public offering (IPO). At this point, Wall Street will list shares of a company hitherto inaccessible to anyone but the shareholders. Anyone with a trading account can then purchase shares of this company.
What are Stocks Options?
A stock option gives an investor the right to buy or sell a given stock. There are two types of options: puts and calls. An options contract typically represents 100 shares of the underlying stock. A large company or corporation may purchase stock options to hedge their exposure to risk in the markets.
Stocks are not to be confused with options nor vice versa. Essentially, stocks are shares of ownership within individual companies. On the other hand, options are contracts you undertake with fellow investors to bet on the price direction of a stock.
If you are new to trading, stocks – pure and simple – may be a good choice for you. Leaving aside the technical jargon, the way to profit through the stock market is simple: buy a stock, wait for the value to rise, and sell it for a higher price.
Options are Attractive to Traders Looking for Flexibility
Traders with time on their hands and a thirst for tactics may prefer investing in stock options. As options contracts have expiration dates, they appeal to traders who are buying and selling stocks frequently. You may find there is more flexibility and room for strategy when trading options. You don’t just bet on stock prices rising. You also consider by what margin the price will change, when this will happen, and the overall direction of the stock.
Maybe you prefer the straightforward ‘choose a stock, and wait for the price to rise’ approach, or you want to watch the markets and keep an active finger on the pulse. Whichever way you choose to play the stock market, you will need to find the right online broker.
Don't Forget About Your Broker
There are plenty of brokers out there, but it is important to separate the wheat from the chaff. Do your research and find a platform that will allow you to build your ideal portfolio with the right tools at your disposal. TradeOr is a new platform making waves in the trading world. Join TradeOr, and you can buy and sell FX pairs, ETFs, and cryptocurrencies, among other assets. Bitcoin investors will love this platform as you can fund your account and trade with the digital currency, setting the platform apart from more traditional brokerage accounts.
Stock options or shares, long-term investing or short-term – what works for one trader may not work for another. How much capital and time do you have to invest? How much risk are you willing to take? Do your research, find a trading style that suits you.