What Are Stocks? A Plain Guide to Shares and the Stock Market

What a stock is

A stock (also called a share or equity) is a unit of ownership in a company. When a company divides its ownership into many equal parts and sells some of them, each part is a share. If you hold shares, you own a small piece of that business.

"Stocks" usually means shares in general. "A share" is a single unit. A company whose shares trade on a stock exchange is called a listed company.

Companies issue shares to raise money without borrowing. Investors give money and receive ownership in return. This is different from a bond, where you lend money to an issuer and expect it back with interest.

What owning a share gives you

A shareholder usually has these rights:

• A claim on profits. The company may pay part of its profit to shareholders as a dividend. Paying a dividend is the board's decision, not an obligation. See Dividends.
• Voting rights. Ordinary shareholders can vote at general meetings, for example on electing directors.
• A residual claim. If the company is wound up, shareholders are paid only after lenders and other creditors. Often little or nothing is left.
• The right to sell. Shares of a listed company can be sold to other investors on the exchange during trading hours.

A shareholder is not personally responsible for the company's debts. The most you can lose on a share you own outright is the money you paid for it.

How the stock market works

A stock exchange is a regulated marketplace where buyers and sellers of listed shares meet. In Pakistan this is the Pakistan Stock Exchange (PSX). See PSX basics for how it is organised.

There are two parts to the market:

• Primary market. A company sells new shares to investors, for example in an initial public offering. See What an IPO Is.
• Secondary market. Investors trade existing shares with each other. The company does not receive money from these trades.

On the secondary market, orders go into an order book:

• The bid is the highest price a buyer is offering.
• The ask (or offer) is the lowest price a seller will accept.
• The spread is the gap between them.

A market order trades straight away at the best available price. A limit order trades only at your price or better, so it may not be filled. The last traded price is what you see quoted as "the share price."

A stock index tracks a group of shares to show how a market or sector is moving. See Stock indices.

What moves share prices

A share price changes when buyers or sellers become more eager than the other side. The main drivers are:

• Company results. Earnings, revenue, debt and cash flow. See Financial Statements and Valuation Ratios.
• Expectations. Prices often reflect what investors expect, not only current results. A profitable company can still fall if results miss expectations.
• Interest rates. Higher rates make deposits and bonds pay more, which can reduce demand for shares and raise companies' borrowing costs. The latest SBP decision: SBP policy rate raised by 50 bps to 12% with effect from 27.10.2026 (MPC). For background, see SBP rates and economy.
• The economy and politics. Inflation, the exchange rate, taxes and policy changes affect many companies at once.
• Corporate actions. Dividends, bonus shares, splits and rights issues change the price per share or the number of shares. See Splits and Rights Issues.
• Liquidity and sentiment. Thinly traded shares can move sharply on small orders, and rumours or fear can push prices away from what the business is worth.

How buying shares in Pakistan works

In Pakistan, ownership of listed shares goes through licensed intermediaries. Per the regulator, the supervisor is the Securities and Exchange Commission of Pakistan (SECP), with trading in listed securities and commodities only via SECP-licensed securities and futures brokers.

The general process looks like this:

1. Choose a licensed broker. Per the SECP, lists of licensed brokers are on the PSX and PMEX websites. Check the name there before opening an account.
2. Open a trading account. The broker verifies your identity, as with a bank account.
3. Hold shares electronically. Listed shares in Pakistan are held in electronic form in a central depository account, not as paper certificates. Your broker explains how your account is set up.
4. Fund the account and place orders. You send money through the broker's official payment channels and place buy or sell orders through its platform.
5. Track costs and tax. Brokerage commission, exchange and regulatory charges, and taxes on dividends and gains reduce your result. Check current rates with your broker. See Payments, tax, Islamic banking.

If you are looking for Shariah-compliant shares, see Islamic finance.

Owning shares vs trading price contracts

Owning a share is different from trading a CFD (contract for difference) on a share or index. A CFD tracks the price, but you do not own the company, you get no vote, and leverage can make losses larger than with an outright purchase. For Pakistani residents, the SECP and SBP have published specific warnings about offshore platforms. See Law and regulators.

Risks of stocks

• Price risk. Share prices can fall a long way and stay low for years.
• Company risk. A single company can fail, and its shares can become worthless.
• No guaranteed income. Dividends can be cut or stopped.
• Liquidity risk. Some shares trade rarely, so you may not be able to sell at the price you want.
• Concentration risk. Holding only a few shares or one sector increases the effect of bad news. See Diversification.
• Fraud risk. Per the SECP, it has issued SECP warnings by press release naming platforms (Quotex 09.04.2025; IBKR look-alikes, IGIL Securities, BMA Capital No.108 etc. 22.05.2025; Hillhouse Capital, S-169 Wharton 13.01.2026), none of which names Exness. Be wary of investment offers made through messaging groups or social media.

Funds can spread money across many shares. See Mutual Funds, What ETFs Are and Index Investing. Before taking on any risk, read Risk Tolerance.

Frequent questions

Are stocks and shares the same thing?

In everyday use, yes. "Stocks" is often the general term for equity ownership, and "shares" are the individual units.

Do I get money from a share if I don't sell it?

Only if the company pays a dividend. Otherwise, any gain or loss exists only on paper until you sell.

Can a share price go to zero?

Yes. If a company fails, its shares can lose all their value. Shareholders are paid after creditors.

Who regulates share trading in Pakistan?

Per the regulator, it is the Securities and Exchange Commission of Pakistan (SECP), with trading in listed securities and commodities only via SECP-licensed securities and futures brokers.

How do I check whether a broker is licensed?

Per the SECP, lists of licensed brokers are on the PSX and PMEX websites. Look up the broker by name on those lists before opening an account.

What decides the price of a share?

Supply and demand on the exchange. These are shaped by company results, expectations, interest rates, the economy and market sentiment.

Is buying shares the same as trading stock CFDs?

No. Buying a share gives you ownership. A CFD only tracks the price, and leverage can make losses grow quickly.