Min menu


The difference between stocks and bonds

Shares are certificates for shareholders that are used to document their ownership rights in joint-stock companies. Shares are defined as a share belonging to the investor and form part of the capital of the establishment. Other definitions of shares are part of the value of the institution or company, and it can be invested and traded.

Definition of bonds:

It is a written contract that contains a commitment to pay a sum of money at a specific date or upon fulfillment of a condition, and all agreements and contracts for loans are bonds, and bonds are defined as money borrowed by governments or establishments, and they pledge to pay them with an interest addition on a date to be agreed upon. Other definitions of bonds are sealed instruments. They are guarantees under which an individual, government or institution pays a specified amount of money.

Stock Characteristics:

Where stocks contain some characteristics that distinguish them from other securities, and below is information about the characteristics of the two main types of stocks, namely:

Characteristics of common stocks:

 It forms these ownership shares in the facility, and each share represents one share, symbolized by a percentage. That is, if the facility issued 1000 shares, and an investor bought 100 shares, then it is considered that he obtained 10% of the facility's ownership, including the right to vote; It is a privilege that is one of the basic features of shares, and its application depends on the shareholders' role in voting to choose the governing body responsible for the business. It also provides the right for shareholders to present their opinions on the deals related to acquisitions and mergers between companies, and the value of shares, which reflects the unspecified value that may increase or decrease. Until it reaches zero; This leads to the stock losing its value and paying dividends, which are important features of these shares The companies pay dividends to the shareholders representing their share of the realized profits.

Characteristics of preference shares:

This type of shares have profits of a cumulative or non-cumulative nature, but most of them are characterized by the fact that their profits are cumulative. That is, the profits that the company does not pay to the shareholders accumulate, and must be paid before paying the dividends of ordinary shares, and this type of shares does not give the right to vote; Because its shareholders obtain preference for companies; Therefore, they are only allowed to vote when certain circumstances occur, such as a two-year delay in the distribution of accumulated profits, as most of the preferred shares have a nominal value, and their distribution rights are usually determined based on their nominal value.

Bond characteristics:

Where bonds are characterized by many characteristics, the most important of which are:

 It is considered an obligation on the issuer. Therefore, the holders of the bonds are considered creditors to this party, and the bond holder receives returns that consist of a periodic interest rate, whether it is quarterly, semi-annual or annual. By relying on the nominal value of the bond, a capital return is obtained that results from the apparent difference between the purchase value and the sale value in the market, and the owner of the bond realizes benefits in all cases without concern for the company’s profit or not, and each bond has a special maturity date. And its value must be paid during this date, and the owner of the bond shall obtain his full rights upon the liquidation of the company and the acceptance of the shareholders of the shares.

Types of shares:

Where there are many types of shares, but often reliance on dealing with two main types, namely:

 Ordinary shares:

And it is the most prevalent among all types of shares, when talking about shares, this type of them is referred to, and most of the shares issued by companies are considered ordinary shares, and they offer high financial returns compared to other types of securities.

 Preferred shares:

They are shares that represent a specific part of the ownership of the enterprise, and depend on the provision of a specific and fixed amount of profits, and this thing is one of the characteristics that distinguish it from ordinary shares.

Types of bonds:

 Bonds are a group of types, and are classified according to specific criteria, including:

Bonds according to the type of collateral:

 It is divided into two types, namely, secured bonds, which are bonds that are secured with assets such as land and real estate, and upon liquidation of the company or non-payment of the obligations arising therefrom, the holders of the bonds are entitled to dispose of these assets. In order to obtain their rights, unsecured bonds, which are bonds that are not secured by assets, and whose guarantees are the net asset value of the company.

Bonds according to their tradability:

 Bearer bonds include; They are securities that accept trading by purchase or sale, and when the interest is due on its date, the investor shall present to the bank the coupon attached to the bond. In order to obtain the interest value, these bonds are called coupon bonds, and bonds registered in the names of investors, and their interest is paid by checks registered in the names of their owners, and these bonds provide protection for their owners from loss or theft.

 Bonds according to their issue value:

It includes three types, namely, bonds that are sold at face value; Where investors believe that the coupon ratio for bonds is proportional to the size of the risks affecting investing in them, and the bonds sold at a discount applied to the face value; Where the coupon ratio for bonds is less than bonds similar to it in the level of risk, and the discount is applied to compensate investors for the actual value paid and the little compared to the nominal value, the bonds sold at a high value compared to their face value; Where the coupon ratio for bonds is higher than bonds of similar level of risk.