Practical Guide: How to Differentiate between Shares and Stocks in Your Investments

When we begin our journey in the financial markets, it is essential to master the basic terminology to make informed decisions. Although at first glance, participations and stocks seem like similar products, there are important distinctions that will directly impact our rights as investors and the viability of our operations.

Why is it crucial to understand these differences?

Confusion between these financial instruments is more common than it seems. Each offers specific benefits and carries different obligations. Understanding these characteristics protects us from making mistakes that could compromise our investment strategy.

Stocks: direct ownership in the company

Stocks represent fractions of a company’s share capital. By purchasing a stock, we become proportional owners of the business. This status grants us multiple prerogatives: voting rights at corporate assemblies, access to financial and accounting information, and participation in profits through dividends.

Depending on the corporate structure, we find various types: common (which confer all the rights mentioned), preferred (with priority in dividends but without voting rights), non-voting (similar to common but without voting capacity), and redeemable (with a pre-established buyback agreement).

Participations: an alternative investment model

Participations function as parts of the capital but with substantially different characteristics. While stocks can only be issued by Corporations, participations can originate from any business structure.

A key aspect: although the holder of a participation receives dividends, they lack voting rights and do not participate in business decisions. Additionally, these are not traded on organized exchanges, which results in low liquidity and prices determined solely by the company’s current financial situation.

Participations in investment funds: a special case

There is an important distinction within participations: those linked to investment funds. In this case, when purchasing a fund, we acquire participations in it. These funds pool assets managed by specialized companies, combining bonds and stocks according to predetermined investment policies.

Markets and liquidity: operational differences

One of the most practical divergences lies in how they are traded. Listed stocks are traded on regulated markets—international exchanges, national exchanges, specialized platforms—allowing quick buying and selling without knowing the counterparty.

Corporate participations, on the other hand, require direct private negotiation. This process is slower and more restrictive, as there is no centralized market facilitating operations. The price does not fluctuate according to market supply and demand but according to the company’s internal valuation.

The issue of order of precedence

A critical factor often overlooked is the order of precedence in the event of corporate bankruptcy. This hierarchy determines who gets paid first: secured creditors, then common creditors, and finally shareholders. Holders of participations are in a position similar to creditors, although generally after other types of debt.

This aspect is fundamental for investors in risky securities: corporate insolvency could result in a total loss of the invested capital.

CFD on stocks: a modern alternative

Stocks and CFDs on stocks are often confused. Although these derivatives replicate the behavior of stocks (identical prices and dividend receipt), they do not grant voting rights or access to assemblies. Their main advantage is accessibility: lower cost, short-term trading, and adaptability to various budgets.

Comprehensive comparison: stocks versus participations

Fundamental similarities between both instruments

Despite the differences, both share basic characteristics: they are proportional parts of capital, accumulative, indivisible, and assignable to individuals or legal entities. In both cases, the holder maintains rights to benefit from the company’s profits.

Final decision: which to choose according to your profile

For operators on digital investment platforms, we typically find stocks and CFDs on stocks, rarely traditional corporate participations. The choice depends on the goal: those seeking corporate influence and strategic participation will opt for common stocks; those mainly pursuing profitability will leverage the agility and flexibility of CFDs.

The key is to know precisely what is being acquired, how it works, and what rights and obligations it entails. This clarity transforms investing into a conscious and strategic process, minimizing unwanted surprises and optimizing financial results.