if you are even remotely involved in equity markets you have likely heard the terms stocks and shares while the terms are often used interchangeably the differences are substantial it is important to understand the differences between the two to speak intelligently about markets have a firmer grasp on terminology and better understand different investment strategies a stock is made up of many shares a share is the smallest denomination of equity in a company that you can own for example you can own one share of apple stock meaning you own a piece of equity in the company each share represents an equal amount of equity in apple if you want to own more equity you have to buy more shares there are also multiple types of shares for example there is common and preferred stock which are actually types of shares as well as classes of stock such as class a b c etc more detail on the differences between the types of shares appears below shares are bought and sold in the stock market the stock market is made up of several exchanges that match buyers and sellers of shares to create liquidity some examples of exchanges are the new york stock exchange nyse and the london stock exchange lse while these are described as stock exchanges they allow for shares of stocks to be bought and sold stocks and shares can also be differentiated by value and price shares have a price for example one share of apple stock could have a price of 200 on the stock market however this number by itself does not give much insight to come to a conclusion about a stock’s value you need to know both the price of shares and the number of shares outstanding multiplying these numbers together equals the market capitalization this measure of the total amount invested in the company is a commonly used way to determine a stock’s value the two main differences between types of shares are dividends and voting rights dividends are when a company pays out its profits to the shareholders the details such as how much is paid and how often are determined by the company’s board of directors additionally some types of shares represent votes in company processes for example one share of apple stock translates into one vote on issues such as board of directors elections or corporate actions for dividends the two main differences involve common stock and preferred stock common stock makes up most shares and has a floating dividend this means that the dividend can change based on how well the company does or on board of directors’ decisions preferred stock has a fixed dividend this means that every dividend payment will be for the same amount no matter how well or poorly the company performs in terms of voting rights few distinctions exist between types of shares for starters preferred stock does not have voting rights while common stock does additionally companies can issue different classes of stock such as class a b c and so on each class often has different voting rights and is mostly created for strategic purposes for example alphabet inc has class a b and c shares class a shares are common stock and have one vote per share class b is held by the founders and has 10 votes per share class c is held by employees and has 0 votes per share this structure allows the founders to have majority voting control without having to own a majority of the shares you are more diversified by owning stocks of several companies than you are by owning shares in a single company of the two types of risk market risk applies to all stocks the economy goes into a recession government stimulus idiosyncratic risk is specific to a single company apple phones don’t sell as well tesla reports strong earnings by owning multiple stocks you reduce your exposure to idiosyncratic risk if you are looking to own shares in several stocks a good way to do so is through an exchangetraded fund etf this collection of stocks gives investors easy access to groups of companies if you are looking to own shares in a single company you can search for the company and purchase that specific company’s shares stocks and shares connected but different