What are Shares?

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What are Shares?

Shares are a portion of the value of a company or financial asset. When a company issues shares, it divides its value into equal units which are offered for sale to investors. For example, if a company is currently worth €500 million and it has issued 100 million shares, each share is currently worth €5.

When you buy shares you buy units of ownership in a company or financial asset. Being a shareholder entitles you to a distribution of any profits in the form of a dividend if any are declared.


Trading shares on Stock Exchanges

 

Publicly listed shares are generally bought and sold on Stock Exchanges. A Stock Exchange is a regulated marketplace for the trading of listed shares, bonds, funds and other financial securities. To be traded on an Exchange, a share must be listed on that Exchange. Each Exchange has its own regulations and requirements that a company must meet before its shares can be listed. These requirements can include such conditions as a minimum annual income, or a minimum number of shares outstanding.


Main market (official list) and alternative markets

 

On each Stock Exchange, shares can be listed either on the Main Market (Official List) or on other exchange regulated markets. The Main Market generally lists the larger, more liquid investments, while other market lists (eg the Enterprise Securities Market in Dublin (ESM)) can facilitate listing at a lower cost and often within a more flexible regulatory framework. 


Primary and secondary markets

 

Shares can be bought on a primary market or secondary market.


The primary market is direct from the company issuing the stock to the buyer, normally through an initial public offering (IPO). 


The secondary market becomes active after the IPO where investors can buy or sell to or from other investors without dealing through the company who issued the shares in the first instance. 


Dual listed shares

 

A share can be listed on more than one Exchange. This is known as dual listing. It can sometimes increase liquidity by making the shares available to a larger group of investors. It can also facilitate the inclusion of a range of indices, which can create demand, to the extent that certain Funds have the sole objective of replicating indices and thus need to acquire certain shares, regardless of their view on the company. If a share is listed on exchanges in different time zones dual listing can increase the hours during which the stock can be traded. Dual listing does however result in additional costs for the listed company. 


Liquidity

The liquidity of a share is the relative ease with which it can be bought or sold, typically due to a high level of trading activity in that stock. Generally, the higher the liquidity of a share, the more easily you can convert your investment to cash, should you wish to do so. A share that is more difficult to sell would be described as illiquid.


How to invest in shares


If you have a trading or pension account, you can invest in shares online. For step by step instructions on how to buy shares, visit How do I buy shares online


Risks

 

Investing in shares is not without risk. Share prices can be volatile. The overall market may fall, or the shares that you invest in may perform badly. The value of your investment may go down as well as up. Past performance is no indication of future performance. Investments denominated in a currency other than your base currency can be affected by exchange rate movements when converted back to the base currency.


Some of the risks involved in investing in shares include:


The Risk of Capital Loss


The share price may fall below the price which you originally paid for the share or may even fall to zero.


Market Risk


This is the chance that the entire market will decline, thus affecting the prices and values of securities. Market risk, in turn, is influenced by outside factors such as interest rate changes.


Sector Specific Risk


This is the risk that a particular sector experiences malaise, e.g. the airlines industry on news of terrorist attacks. 


Stock Specific Risk


Similar to sector specific risk, this is the risk that a particular investment will experience share price declines due to negative news flow or poor sentiment towards the company.


These are just some of the risks that are associated with an investment in the stock market.


Read a more detailed explanation of the risks of investing in shares.