What are shares? Explanation of shares

It is common to hear on the news information about the Stock Exchange, IPOs and other events related to the purchase and sale of shares. In general, people understand that this is a high-yield investment, but a lot of people don’t really know what stocks are and how they work.
This lack of knowledge leads many to believe that investing in stocks is only for billionaires. However, this is not true. With study and preparation, anyone can enter the financial market and obtain excellent results. With that in mind, in this article, we explain everything you need to know about what stocks are and how to make money with variable income. Interested? Check it out below!

What are shares?

Stocks are assets that represent a small fraction of a company’s market value. By buying these bonds, the investor becomes a partner in the organization and is entitled to a portion of its profits. On the other hand, the company benefits from obtaining resources to expand its business. The results obtained with shares are directly linked to the company’s performance, which requires great care when choosing where to invest. If the company is growing, you can profit a lot, but if it gets into trouble, the loss can be huge. Therefore, before buying shares, you must first evaluate the business and the market in which it is inserted. Numbers and graphs are important but always look beyond them. Thus, your chances of being successful will increase considerably.

Differences between shares and debentures

When it comes to investing in companies, the two most common paths are stocks and debentures. In order not to confuse the applications, it is essential to know the differences between the two. While shares are variable income assets, whose prices fluctuate according to market demand, debentures are fixed income securities issued by companies. By purchasing these assets, the investor does not become a partner in the company but rather lends money to the issuer. At the end of the agreed term, he receives the amount back with interest defined at fixed or post-fixed rates. Compared to other fixed-income securities, debentures tend to be more profitable, as they are traded at higher interest rates. However, they also present a greater risk, as they do not have the protection of the Credit Guarantee Fund (FGC) . When compared to equities, they are considered safer, as equities have risks but also a potential for much greater gains.

How does the stock market work?

When they want to put their shares up for sale for the first time, companies make a move called IPO ( Initial Public Offering ), also known as going public. As a result, they are listed on the Stock Exchange and can sell bonds to raise funds and expand their business. After the IPO, any person registered on the Stock Exchange can become a shareholder of the company, having the chance to profit from trading the assets and with the profits distributed to the partners periodically (earnings). Share values ​​vary according to the company’s performance in the market and investors’ expectations. Therefore, prices can vary many times in the same day, making it impossible to accurately predict what the next events will be.

primary market x secondary market

From the moment shares begin to circulate on the Stock Exchange, they can be traded in two ways:
  • primary market: the investor buys the assets directly from the company, right after going public;
  • secondary market: investors buy and sell bonds among themselves, without contact with the company.
In both cases, everything happens through a brokerage firm, which bridges the gap between those involved and executes buy and sell orders on its online platforms.

How to make money from stocks?

Now that you know what stocks are, it’s time to learn more about making money from them. The best-known way is to buy a security when it is cheap and wait for it to appreciate, selling at a higher price. However, the Stock Exchange offers even more opportunities for those who want to invest in this market. Remember that, in all options, the profit obtained is proportional to the number of shares you have in that company. So, the more bonds in the portfolio, the greater the return. That said, check out the main ways to profit in this market.

Stock appreciation

Appreciation usually happens as a result of the relationship between supply and demand: if many investors are interested in an asset, its price tends to rise. In this scenario, those who invested in that security, anticipating its appreciation, can do very well with the sale.

stock drop

It’s also possible to make money if you think a stock might fall in price. But how? For this, there is an operation called short selling. It allows you to borrow stock from another investor and sell at its current value. If what you imagined happens and the price drops within the expected time, you buy cheaper and return it to the original owner. If the value does not fall or rises, you will need to return bearing the loss.


Dividends are one of the most popular ways to make money with stocks. They consist in the periodic distribution of profits made by the company to the shareholders, aiming to retain them and attract new investors. It is very common to hear that every company listed on the Stock Exchange is required by law to share at least 25% of its net income with shareholders. However, this is just an informal pattern adopted by many Brazilian companies. In fact, the Corporations Act says that the company’s bylaws define the percentage of mandatory dividend payments to investors. If the statute is silent, the value is fixed at 50% of net income.

Interest on Equity (JCP)

The interest on capital is dividends distributed to shareholders regardless of the profit generated by the company. As these payments are recorded as expenses, the organization gains tax exemption, which may increase the share transferred to the investor. On the other hand, those who receive it are taxed at 15% withholding income tax.
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