What are shares?

A share represents a unit of ownership in a company.

When a company issues shares, its ownership can be divided among many shareholders.

For example, suppose a company is valued at $10 million and has one million shares outstanding.

A simplified calculation would give:

$10,000,000 ÷ 1,000,000 = $10 per share

Investors who purchase shares become shareholders in the company.

One important reason is to raise capital.

A company might need additional funding to:

Rather than borrowing all the required money, the company can sell ownership interests to investors.

If investors believe the company will become more valuable in the future, demand for its shares may increase.

At the most basic level, share prices are influenced by supply and demand.

If more market participants want to buy a share than sell it, buying pressure can push the price higher.

If selling pressure becomes stronger, the price can fall.

But what changes supply and demand?

Investors closely follow company revenue, profits and future expectations.

Results that are stronger than expected may increase demand for the company's shares.

Disappointing results may have the opposite effect.

Share prices can respond to:

Interest rates, inflation and economic growth can affect how investors value companies.

Prices can also change because investors become more optimistic or pessimistic about a company, industry or the wider economy.

Volatility describes the degree to which a market price moves over time.

A share whose price changes significantly in short periods is considered more volatile than one whose price remains relatively stable.

Higher volatility can create more trading opportunities, but it can also increase risk.