Share

Shares are securities that securitise a share in the equity of a public limited company (Aktiengesellschaft; AG) and offer the holder various rights and opportunities. A share represents a stake in the company. Shareholders thus are co-owners of the company and therefore have a say, for example at the annual general meeting. This is where important decisions are made, such as the election of the board of directors or distribution of dividends, which are paid out to shareholders as a share of the company’s profits.

The share price is the current market price of a share and is determined by supply and demand. Fluctuations in the share price may be influenced by various factors, such as company news, economic developments, or market trends. Market capitalisation of a company is calculated by multiplying the share price by the number of shares issued and provides information on the total value of the company on the market. High market capitalisation may indicate a large and financially strong company.

The nominal value of a share, often stated on the share certificate, usually plays a subordinate role today, as the market value, i.e., the current market price, is decisive to determine the share’s value. The trading volume shows how many shares of a company are traded within a certain period of time. A high trading volume can indicate strong interest in the share and high liquidity.

Particularly stable and renowned companies are often referred to as blue chips. Such companies are generally well-established and considered comparatively secure and reliable. Mergers are another important concept in share trading. This means that two or more companies will merge to form a new company. This may significantly affect the share structure and market value of the companies involved.

Shareholders who acquire shares also have the right to maximum voting rights, which limits the maximum number of votes that an individual shareholder can exercise. This is to prevent individuals or groups from gaining excessive control over company decisions.

Securities such as shares are identified by special identification numbers. The securities identification number (Wertpapierkennnummer; WKN) is used for this purpose in Germany, while the International Securities Identification Number (ISIN) is used for unique identification internationally. These numbers make it much easier to trade and manage securities.

In short, shares are a relevant instrument for capital investment and co-determination in a company. Many factors such as market value, dividend, trading volume, and legal identification numbers are important for this.

What is a share split?

A share split will divide the price of the security by a fixed ratio, adjusting the number of shares accordingly. In the case of a 1:2 share split, for example, the price is halved, and the number of shares is doubled. Stock corporations perform such splits to make their shares easier to trade or more attractive to a broader range of investors. Charts, orders, and the number of shares in the portfolio are generally adjusted automatically by the broker at a share split. Nevertheless, investors and traders should always review their positions as soon as a company announces news of an impending stock split.

What are blue chips?

Blue chips are shares with particularly high turnover and a high market capitalisation. The shares usually are weighted highly in the relevant indices and belong to large, popular companies with a high market capitalisation. They are also referred to as standard values. In Germany, for example, these are Siemens, Bayer, and SAP, which are listed in the DAX30 (German share index).

What is a dividend?

Dividends are usually paid out to shareholders by stock corporations once a year; in the USA this is done quarterly. This is a profit distribution of the company listed on the stock exchange. Dividends are calculated per share. The total distributed profit is divided by the total number of existing shares. The dividend amount is determined in the annual general meeting between the shareholders and the supervisory board. Poor business performance may mean that no dividend will be paid out.

What is a merger?

A merger means the combination of two companies that used to operate independently of each other. Such mergers may take the form of one company acquiring another or two companies merging to form a new company. The advantages are, for example, an expansion of the product range or new sales markets.

What is an annual general meeting?

The annual general meeting of a stock corporation means the annual assembly of all shareholders, the board of directors, and the supervisory board. This important meeting will provide information to shareholders and be used to pass resolutions on company matters. Shareholders have a corresponding voting right in votes on important company decisions, depending on the number of shares held. Caution on the markets is due on the date of the annual general meeting and upon publication of the quarterly reports since large price jumps may occur as a result of decisions made.

What is the maximum voting right?

Stock corporations may limit the voting rights of shareholders to a maximum voting right in their articles of association. Shareholders usually have voting rights that are weighted higher or lower based on the number of shares they hold. The maximum voting right enables the stock corporation to limit this rule.

What is a holding company?

A holding company is a company with a main purpose not based on its own products or services but focusing on organising its subsidiaries. It acts as an umbrella organisation. The term holding company does not refer to any specific legal form, but to an organisational structure. The subsidiaries within this organisation are legally independent companies. The parent company is responsible for management, administration, and financing.

What is the ISIN?

ISIN is short for International Security Identification Number. It comprises a twelve-digit combination of letters and numbers and is used on the stock exchange to uniquely identify securities.

What are new shares?

New shares are shares that are newly issued as part of a capital increase. Accordingly, they are not yet fully entitled to dividends, and they are listed and traded separately from the old shares on the stock exchange. New shares are only equated with the old shares after the first dividend payment.