Within the four asset classes, perhaps the best known are equities, also known as shares and stocks.
What is a Share?
A ‘share’ is a share of a companies profits. The company might pay out the profit as a dividend or it might decide to keep it and reinvest the capital.
Owners of public companies can buy and sell shares on exchanges – this is where the price of the share is quoted. The aim of owning a share is to make money from it, this can be done by receiving dividends or if the price increases.
Buying Shares
Lets show you an example using BP Plc, you can see the BP’s live share price here. (We did some rounding for the example).
| Total BP Shares | Quoted Price | Capitalisation | Shares you own | % of company | Value |
| 20,000,000,000 | £5 | £100,000,000,000 | 100 | 0.0000005% | £500 |
| Total BP Shares | Quoted Price | Capitalisation | Shares you own | % of company | Value |
| 20,000,000,000 | £5.50 | £110,000,000,000 | 100 | 0.0000005% | £550 (+£50) |
| Total BP Shares | Quoted Price | Capitalisation | Shares you own | % of company | Value |
| 20,000,000,000 | £4.50 | £90,000,000,000 | 100 | 0.0000005% | £450 (-£50) |
A trader’s job is to buy when they think the price will go up or short when think it will go down.
Indices
An index is a single measure of a group of shares. There are 1000’s of indices, the popular ones include the FTSE100, which measures the performance of the UK’s 100 largest shares. Here are some live prices and charts from some of the world’s most popular indices:
Indices are typically calculated in one of two ways, either capitalisation weighted or price weighted.
In capitalisation weighted indices the bigger companies have more impact on the index price. For price weighted indices the companies with higher prices have more impact. Because of they way they are calculated, price weighted indices can be more volatile. If you’re trading an index, make sure you know the basis for its calculation.
- Owning a share gives you the rights to a ‘share’ of a companies profits.
- Owners of company shares make a profit from dividends and if the price of the share increases.
- Market capitalisation is the total value of a company’s shares, this is also called its equity value. It is calculated by multiplying the total number of shares outstanding together with the current share price.
- Indices are part of the equities asset class.
- An index is a single measurement of the price performance of a group of shares.
- There are two types of index, capitalisation weighted and price weighted.
