Shares

Shares are securities that represent a portion of the equity capital of a public limited company (corporation) and give their holders various rights and opportunities. Each share stands for a stake in the company, which makes shareholders co-owners with a say in its affairs, for example at the general meeting. This is where important decisions are taken, such as electing board members or distributing dividends, which are paid out to shareholders as their share of the company's profits.

The share price is the current market price of a share and is determined by supply and demand. It can fluctuate for various reasons, including company news, economic developments and broader market trends. A company's market capitalisation is calculated by multiplying the share price by the number of shares outstanding and shows the total value the market places on the company. A high market capitalisation can indicate a large, financially strong company.

The nominal (par) value of a share, often stated on share certificates, usually plays only a minor role today, because the market price is what counts when valuing a share. Trading volume shows how many shares of a company are traded within a given period. High trading volume can point to strong interest in the share and high liquidity.

Particularly stable and renowned companies are often referred to as blue chips. They are usually well established and are considered comparatively safe and reliable. Another important concept in share trading is the merger, in which two or more companies combine to form a new company. This can significantly affect the share structure and market value of the companies involved.

Where company law permits, a company can also introduce a maximum voting right, or voting cap, in its articles of association. It limits the number of votes a single shareholder can cast, regardless of how many shares they hold, and is intended to prevent individuals or groups from gaining too much control over corporate decisions.

Shares and other securities are identified by special codes. In Germany, the six-character WKN (Wertpapierkennnummer) is commonly used, while internationally the International Securities Identification Number (ISIN) uniquely identifies each security. These codes make trading and administering securities considerably easier.

In short, shares are an important instrument for investing capital and having a say in a company, with many factors playing a role, such as the share price, dividends, trading volume and identification codes. Traders can also speculate on share prices without buying the shares themselves, for example with CFDs; in that case, they acquire neither ownership nor voting rights.

What is a stock split?

In a stock split, the price of a share is divided by a fixed ratio and the number of shares is adjusted accordingly. In a 2-for-1 split, for example, the share price is halved and the number of shares doubles, so the total value of a holding stays the same. Companies carry out splits to make their shares easier to trade or more attractive to a wider range of investors. As a rule, brokers automatically adjust charts, orders and the number of shares held in the portfolio when a split takes effect. Nevertheless, investors and traders should always check their positions as soon as a company announces an upcoming stock split.

What are blue chips?

Blue chips are heavily traded shares with a high market value. They usually carry a large weighting in their respective indices and belong to well-known, large companies with a high market capitalisation. Classic German examples are Siemens, Bayer and SAP, all of which were members of the DAX, Germany's leading share index, when it was expanded from 30 to 40 companies in September 2021.

What is a dividend?

A dividend is a distribution of profits that a company listed on a stock exchange pays to its shareholders. In Germany, dividends are usually paid once a year, whereas US companies typically pay them quarterly. The dividend is stated per share: the total amount of profit distributed is divided by the total number of shares. In Germany, the amount is decided at the annual general meeting on the basis of a proposal from the management and supervisory boards; in other countries, such as the US, the board of directors usually declares the dividend. If business performance is poor, it is entirely possible that no dividend is paid.

What is a merger?

A merger is the combination of two companies that previously operated independently of each other. It can take place when one company buys the other or when the two companies join together to form a new company. Possible advantages include a broader product range or access to new sales markets.

What is a general meeting?

The annual general meeting (AGM) of a public limited company is the yearly gathering of its shareholders and its management and supervisory boards. It serves to inform shareholders and to pass resolutions on company matters. Shareholders vote on important corporate decisions, with voting rights depending on the number of shares they hold. On the day of the general meeting, as well as when quarterly reports are published, caution is advised in the markets, as the decisions taken can trigger large price jumps.

What is a voting cap?

Public limited companies can use their articles of association to restrict shareholders' voting rights by setting a maximum voting right. Normally, shareholders have voting rights in proportion to the number of shares they hold, so larger holdings carry more weight. A voting cap allows the company to limit this principle. Such caps are not permitted everywhere: in Germany, for example, a 1998 reform abolished them for listed companies.

What is a holding company?

A holding company is a company whose main business is not based on its own products or services but on managing its subsidiaries. It acts as an umbrella or parent company. Note that "holding" is not a legal form but an organisational structure. Within this structure, the subsidiaries remain legally independent, while the parent company is responsible for their management, administration and financing.

What is the ISIN?

ISIN stands for International Securities Identification Number. It is a twelve-character combination of letters and digits used on stock exchanges to identify securities uniquely. It begins with a two-letter country code (for example DE for Germany or US for the United States), followed by a nine-character national identifier and a single check digit.

What are new shares?

New shares are shares issued as part of a capital increase. If they are not yet fully entitled to dividends, they are listed and traded on the stock exchange separately from the existing ("old") shares. Only after the next dividend payment do the new shares rank equally with the old ones.