What are Stocks and Shares? - More

A share simply represents the ownership of a certain proportion of a company.

Let us suppose that a company, WIDGETS LTD for example, issues 5,000,000 new shares for the whole company and that you buy 1000 of them. You immediately own the percentage 1000 divided by 5,000,000 times 100 of that company.

That represents the ownership of 0.02% of the company.

So if the company is valued at 10 million pounds by the market, your 1000 shares will be worth 2,000 pounds.

Hence each share will be worth 2 pounds.

So how does a company initially issue shares?

When an old company wishes to come to market, i.e., sell shares, it usually does so to raise capital for expansion. This can also provide a market for some company owners to sell their stake.

A new company may be looking for start-up capital; this is usually called an IPO or initial public offering.

An IPO is sometimes referred to as the primary market in shares as it is the first time that the shares are sold.

The secondary market in shares is when the shares are traded after the IPO. This is where the overwhelming majority of shares are traded, and it is most probably the way in which you may purchase your shares.




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