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What are stocks and shares?

Posted: 25 May 2020

Contributor: London Stock Exchange |

When you trade on our markets you invest in specific securities, such as shares. London Stock Exchange offers trading shares in companies, from the very biggest to those showing potential for rapid growth. Shares, which are also known as equities, are the basic unit of investment in these companies.

Businesses issue shares to raise money, sometimes to finance expansion. If you decide to invest in them you will become a part-owner in the company and benefit from its success, but you also face some risk if it doesn’t perform well.

There are two ways you could benefit if you decide to invest in shares. You might receive a regular income from the company in the form of a dividend, and you might enjoy a capital gain if the company does well and the value of your investment rises.

Suppose you buy 100 shares in a company for £10 each ­– costing you £1,000 plus your broker’s fee. Many listed companies pay a dividend every quarter or six months. If the management decided to pay you a 7% dividend you would receive £70. The value of your shares might also rise to £12 each, so you could then sell them for £1,200, making a capital gain of £200.

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