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12/01/2022

Stock market basics : What are stocks ?

Everything you need to know about stocks

When it comes to investing, stocks are one of the most frequently mentioned investments. These securities provide investors with rights that they can use to build a portfolio or diversify their investment strategy. Read on to find out how stocks work.

What is a stock ?

On the stock market, a share is a fraction of the capital of a company. This means that when you buy a share, you own a part of the company in which you invest. Shares thus contribute directly to assessing the value of a company, but also its development prospects. Shares are an interesting financial instrument for investors. They must be held in a specific account, rather than a current account, but there is no particular limit : a person can hold several shares in an account.

And while shares are generally private investments, they can also be distributed to the employees of a company, also known as profit-sharing, wherein dividend bonuses replace the traditional dividends. Shares can therefore take various forms and be traded on more or less regulated markets. But how do they work ? Discover the main types of shares to better understand the stock market.

The different types of stocks available on the stock market

There are several main families of shares which may vary from one family to another. A clear distinction must be made between registered shares and bearer shares. In the first case, your investment allows you to be registered in the company's legal records and to benefit from increased advantages. Bearer shares, which are more common, are completely anonymous. They are traded by financial intermediaries, who are responsible for placing your stock market orders.

Another distinction is between common shares and preferred shares. Ordinary shares give you three types of rights: the right to vote at the company's general meetings, the right to the profits made (which are paid out as dividends) and the right to the net assets in the event of liquidation.

On the other hand, preferred shares do not give you any voting rights; in return, the payment of your dividends takes priority over the payment of ordinary shares. Finally, a distinction must be made between listed and unlisted shares. Listed shares are subject to strict regulations, since their trading is regulated by the financial markets. When it comes to unlisted shares, buying and selling prices are freely determined by investors, and are not always regulated in the same way as in traditional financial markets.

Listed stocks: regulated and controlled markets    

As mentioned above, only listed shares are traded on the financial markets. These markets are subject to strict regulation by financial authorities. In addition, French markets are supervised by the authorized private company Euronext, as well as various independent stock exchange platforms. The markets on which listed shares are traded are therefore intended to be as transparent as possible in order to offer investors optimal visibility.

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