By the end of this lesson you understand what a share is, what rights it gives its holder, and why its price is set by the market and not by the company that issues it.
\nA share is a security that represents a proportional part of a company's ownership. When you buy a share, you're not lending money to the company: you become a part-owner of it, in the exact proportion that share represents of the total shares outstanding.
\nShares are also known as equities, precisely because they offer no return agreed in advance: what you gain or lose depends entirely on how the price performs in the market and on whether the company decides to distribute profits, never on a figure promised when you bought it.
\nBeing a shareholder grants, in principle, two rights: the right to a proportional share of profits, if the company decides to distribute them as a dividend; and voting rights at the shareholders' meeting, also proportional to the number of shares you hold. In practice, if your stake is small compared to other shareholders -- funds, other large investors -- that voting right carries little weight, but it still exists.
\nA share's price isn't set by the company or by any body: it's determined by the market, through the same supply-and-demand mechanism you already saw in the previous module. That's why a share's price can move constantly during market hours, even though nothing has changed about the company at that specific moment -- what changes is investors' collective perception of its future value.
\nIt's important to note something often overlooked: the number of shares a company has isn't fixed forever. It can increase (a capital increase) or, more rarely, decrease (a share buyback). When the number of shares increases, each existing shareholder's proportional stake shrinks, even if they haven't sold anything -- this is called dilution.
\nIf a company like Apple has on the order of 15 billion shares outstanding and you buy a single share, your stake in the company's ownership is tiny -- but real: you have the right, proportional to that one share, to whatever profits it distributes and to vote at its shareholders' meeting.
\nA share is a proportional part of a company's ownership, not a loan -- it's also known as equity, because it offers no fixed return agreed in advance. It grants a right to a share of profits, if distributed, and a vote at the shareholders' meeting. Its price is set by the market, not the company, and the number of shares outstanding can change over time.
\nWhy is buying a share not the same as lending money to a company?
\nWhat happens to your ownership percentage if the company does a capital increase and you don't buy any new shares?
","sortOrder":1,"readingMinutes":5,"difficulty":"Básico"},"previous":null,"next":{"id":7,"moduleId":3,"slug":"what-is-a-bond","title":"What is a bond?","summary":"You understand what a bond is, how it structurally differs from a share, and what default risk is.","bodyMarkdown":"## Objectives\n\nBy the end of this lesson you understand what a bond is, how it structurally differs from a share, and what default risk is.\n\n## Content\n\nA bond is a debt instrument: the buyer lends money to the issuer -- a company or a government -- in exchange for periodic interest payments (the coupon) and repayment of the principal on a specific future date (maturity).\n\nBonds are also known as **fixed income**, because the issuer agrees on the interest rate and repayment date in advance -- unlike a share, that agreed-upon return doesn't depend on how the company performs in the future.\n\nUnlike a share, a bond carries no ownership or voting rights: the bondholder is a creditor, not a part-owner. This has an important consequence if the issuing company runs into serious financial trouble: creditors (bondholders) get paid before shareholders if the company is liquidated -- shareholders are last in line, and often recover nothing.\n\nA bond's main risk is default risk, also called credit risk: the possibility that the issuer can't pay the interest or repay the borrowed principal. Not all bonds are equally safe -- a bond from a government with solid finances is considered much safer than one from a heavily indebted company, and that lower risk is usually reflected in a lower interest rate. The higher the perceived default risk, the higher the interest the market tends to demand in exchange for taking it on.\n\nA bond's price, like a share's, can also change on the secondary market before maturity -- it typically moves in the opposite direction to general interest rates, something explained in more detail later in the curriculum.\n\n## Example\n\nWhen a government needs to fund its public spending, it can issue government bonds: whoever buys them lends money to the government in exchange for periodic interest and repayment of the principal on the agreed maturity date, for example in 10 years.\n\n## Common mistakes\n\n- Confusing a bond with a share just because both are \"something you buy in the market\" -- a bond is debt with a fixed repayment date, a share is indefinite ownership with no repayment date.\n- Assuming all bonds are equally safe -- default risk varies enormously depending on who issues them.\n\n## Summary\n\nA bond is a loan -- also known as fixed income, because the interest and repayment of the principal are agreed in advance: the buyer lends money in exchange for periodic interest and repayment of the principal at maturity. Unlike a share, it carries no ownership or voting rights, and bondholders get paid before shareholders if the company is liquidated. Default risk varies according to the financial strength of whoever issues the bond.\n\n## Self-check\n\nWhat's the fundamental difference between being a shareholder and being a bondholder of the same company?\n\nWhy does a bond with higher default risk usually offer a higher interest rate?","bodyHtml":"By the end of this lesson you understand what a bond is, how it structurally differs from a share, and what default risk is.
\nA bond is a debt instrument: the buyer lends money to the issuer -- a company or a government -- in exchange for periodic interest payments (the coupon) and repayment of the principal on a specific future date (maturity).
\nBonds are also known as fixed income, because the issuer agrees on the interest rate and repayment date in advance -- unlike a share, that agreed-upon return doesn't depend on how the company performs in the future.
\nUnlike a share, a bond carries no ownership or voting rights: the bondholder is a creditor, not a part-owner. This has an important consequence if the issuing company runs into serious financial trouble: creditors (bondholders) get paid before shareholders if the company is liquidated -- shareholders are last in line, and often recover nothing.
\nA bond's main risk is default risk, also called credit risk: the possibility that the issuer can't pay the interest or repay the borrowed principal. Not all bonds are equally safe -- a bond from a government with solid finances is considered much safer than one from a heavily indebted company, and that lower risk is usually reflected in a lower interest rate. The higher the perceived default risk, the higher the interest the market tends to demand in exchange for taking it on.
\nA bond's price, like a share's, can also change on the secondary market before maturity -- it typically moves in the opposite direction to general interest rates, something explained in more detail later in the curriculum.
\nWhen a government needs to fund its public spending, it can issue government bonds: whoever buys them lends money to the government in exchange for periodic interest and repayment of the principal on the agreed maturity date, for example in 10 years.
\nA bond is a loan -- also known as fixed income, because the interest and repayment of the principal are agreed in advance: the buyer lends money in exchange for periodic interest and repayment of the principal at maturity. Unlike a share, it carries no ownership or voting rights, and bondholders get paid before shareholders if the company is liquidated. Default risk varies according to the financial strength of whoever issues the bond.
\nWhat's the fundamental difference between being a shareholder and being a bondholder of the same company?
\nWhy does a bond with higher default risk usually offer a higher interest rate?
","sortOrder":2,"readingMinutes":5,"difficulty":"Básico"},"pathContext":null,"curatedLinks":{"prerequisite":[],"continuation":[],"related":[{"lesson":{"id":3,"moduleId":2,"slug":"how-do-stock-exchanges-work","title":"How do stock exchanges work?","summary":"You understand what a stock exchange is, what role it plays as a regulated institution, and how a stock's price is determined within it.","bodyMarkdown":"## Objectives\n\nBy the end of this lesson you understand what a stock exchange is, what role it plays as a regulated institution, and how a stock's price is determined within it.\n\n## Content\n\nA stock exchange is an organized, regulated financial market specifically dedicated to trading shares of companies listed on it. \"Organized\" means it follows clear rules about how trades are executed; \"regulated\" means a supervisory body oversees that those rules are followed and that participants receive truthful information -- in Spain, that body is the Comisión Nacional del Mercado de Valores (CNMV).\n\nA very common misconception is thinking that the exchange \"sets\" a stock's price, as if it were a catalog with prices decided in advance. That's not how it works: the price continuously emerges from the meeting of buy orders and sell orders from all participants. If at a given moment more investors want to buy a stock at the current price than investors are willing to sell it, the price tends to rise; if the opposite happens, it tends to fall. The exchange simply organizes that meeting in an orderly and transparent way -- it doesn't decide the outcome.\n\nIt's important to distinguish two different moments in a stock's life on the exchange:\n\n- **Primary market**: when a company sells shares for the first time (its IPO, or a later capital increase) and receives the money directly from the buyers.\n- **Secondary market**: all subsequent trades, in which investors buy and sell shares among themselves. The company no longer receives that money directly -- ownership of part of it simply changes hands.\n\nThe vast majority of the trades you see reflected in a stock's price, day to day, happen in the secondary market, between investors -- not between an investor and the company.\n\n## Example\n\nThe Madrid Stock Exchange, the New York Stock Exchange (NYSE), and the Nasdaq are real examples of stock exchanges. Each organizes trading for the shares of the companies listed on it, with its own hours, admission rules, and trading systems -- but on all three, the underlying mechanism is the same: matching buy and sell orders to form a price.\n\n## Common mistakes\n\n- Thinking that the exchange sets a stock's price as if it were a catalog -- the price emerges from participants' buy and sell orders, not from a decision by the exchange.\n- Confusing buying a stock in the secondary market with giving money directly to the company -- you're almost always buying it from another investor, not from the issuing company.\n\n## Summary\n\nA stock exchange is an organized, regulated market where shares of listed companies are bought and sold. Each stock's price emerges from the meeting of supply and demand, not from a decision by the exchange or the company. Most trades happen in the secondary market, between investors -- not directly with the company.\n\n## Self-check\n\nWho really sets a stock's price on an exchange?\n\nWhat's the difference between the primary market and the secondary market?","bodyHtml":"By the end of this lesson you understand what a stock exchange is, what role it plays as a regulated institution, and how a stock's price is determined within it.
\nA stock exchange is an organized, regulated financial market specifically dedicated to trading shares of companies listed on it. "Organized" means it follows clear rules about how trades are executed; "regulated" means a supervisory body oversees that those rules are followed and that participants receive truthful information -- in Spain, that body is the Comisión Nacional del Mercado de Valores (CNMV).
\nA very common misconception is thinking that the exchange "sets" a stock's price, as if it were a catalog with prices decided in advance. That's not how it works: the price continuously emerges from the meeting of buy orders and sell orders from all participants. If at a given moment more investors want to buy a stock at the current price than investors are willing to sell it, the price tends to rise; if the opposite happens, it tends to fall. The exchange simply organizes that meeting in an orderly and transparent way -- it doesn't decide the outcome.
\nIt's important to distinguish two different moments in a stock's life on the exchange:
\nThe vast majority of the trades you see reflected in a stock's price, day to day, happen in the secondary market, between investors -- not between an investor and the company.
\nThe Madrid Stock Exchange, the New York Stock Exchange (NYSE), and the Nasdaq are real examples of stock exchanges. Each organizes trading for the shares of the companies listed on it, with its own hours, admission rules, and trading systems -- but on all three, the underlying mechanism is the same: matching buy and sell orders to form a price.
\nA stock exchange is an organized, regulated market where shares of listed companies are bought and sold. Each stock's price emerges from the meeting of supply and demand, not from a decision by the exchange or the company. Most trades happen in the secondary market, between investors -- not directly with the company.
\nWho really sets a stock's price on an exchange?
\nWhat's the difference between the primary market and the secondary market?
","sortOrder":2,"readingMinutes":5,"difficulty":"Básico"},"route":{"levelSlug":"fundamentals","moduleSlug":"introduction-to-markets"}}]},"relatedConcepts":[{"concept":{"id":6,"slug":"share","term":"Share","shortDefinition":"A security that represents a proportional part of a company's ownership -- whoever holds it is a part-owner of that company, in the proportion that share represents of the total.","longDefinition":"Buying a share is not lending money to the company (that's what bonds are): it's acquiring a portion of its ownership. As a shareholder, you're entitled to a proportional part of the profits if the company pays dividends, and in principle to a vote at the shareholders' meeting -- although in practice that vote carries little weight if your stake is small compared to other shareholders. A share's value isn't set by the company: it's determined by the market, through the same supply-and-demand mechanism that sets the price of any asset in a financial market."}}]}