What every trader should know: stocks versus shares

When we start in the trading world, we encounter a very common confusion: thinking that shares and participations are the same. Spoiler: they are not. And that difference can cost you a lot if you’re not clear about it. Here we explain what truly distinguishes these two instruments and why it matters to know the difference.

The starting point: what are shares really?

Shares are fractions of a company’s share capital. When you acquire a share, you become the owner of that company in proportion to your investment. If you own enough shares to influence business decisions, you are a key shareholder. If your stake is small, you are a minority shareholder.

This concept of ownership is key: as a shareholder, you have rights that go beyond simply expecting profits. You have voting rights at general meetings, access to accounting and legal information, and the right to receive dividends when the company decides to distribute them. Additionally, if the company issues new shares or convertible bonds, you have preemptive subscription rights.

The participations: the lesser-known cousin

Participations are also fractions of the company’s capital, but they operate in a completely different way. Any company can issue participations, not just corporations. Here’s the important part: if you hold participations, you receive dividends, but you do not have voting rights. You cannot attend meetings or influence business decisions.

Another crucial difference: participations are not traded on stock exchanges or regulated markets. Their sale occurs exclusively in the private sphere, which means almost no liquidity. The price is not set by market supply and demand, but solely by the company’s current financial situation and business prospects.

The trap of participations in investment funds

There is a term that causes quite a bit of confusion: “participation” is also used to refer to units of investment funds. When you invest in a fund, you buy participations of that fund. This is completely different from corporate participations. Funds require a minimum of 100 participants, a minimum capital of 3 million euros, and a management company that handles investments while a depositary custodies the securities.

Understanding this distinction is essential to avoid confusing an investment fund with ownership of a company.

How to buy and sell: the liquidity factor

This is where you see the difference in action. Listed shares are traded easily through regulated financial markets. You don’t need to know the buyer or seller; intermediaries handle the transactions. It’s quick, accessible, and functional.

Corporate participations are another story. You have to contact potential buyers or sellers directly. There is no organized market. This lack of liquidity is a serious problem: if you need to sell, it may take weeks or months to find a counterparty.

The order of priority: what happens when everything collapses

Here’s something many investors ignore but should keep you awake if you invest in low-value shares or troubled companies. When a company goes bankrupt, there is a priority order for payment:

First, secured creditors (mortgages, senior debt) get paid. At the very end of the line, when there’s almost nothing left, are the shareholders. That is: if you invest in a share and the company collapses, your money disappears first. This is especially relevant if you are looking at “penny stocks” or companies under financial stress.

Shareholder versus participant: two completely different figures

A shareholder is an owner. A participant is a creditor. That is the fundamental difference.

As a shareholder, you have a direct interest in the company’s success. As a participant, you only have the right to collect what has been previously stipulated. It’s a relationship more akin to a loan than to property investment. The participant receives dividends during a predetermined period; the shareholder can hold their shares indefinitely.

And the CFDs on shares? Where do they fit?

Here’s the twist: CFDs on shares behave the same as shares. The price fluctuates similarly, you receive dividends, but you are not a shareholder. You do not have voting rights, you do not attend meetings. Why do many traders prefer CFDs then? Because of lower costs, greater agility, access to small investments, and because they allow short selling.

Most trading platforms mainly offer shares in CFD format. Traders’ interest is usually not in controlling a company, but in earning returns through appreciation and dividends. CFDs provide both.

Comparative table: shares, participations, and CFDs at a glance

Similarities you should not ignore

Despite the differences, shares and participations share characteristics:

• Both are indivisible fractions of capital
• They can be accumulated in the same company or different ones
• Cannot be split among multiple holders
• Both generate economic rights (dividends)

What really matters: why this difference changes your strategy

If you trade with listed ordinary shares, you have maximum liquidity and flexibility. If someone offers you corporate participations, you need to understand that you are entering an illiquid market where exiting can be very complicated. And if you work with CFDs on shares, remember that you earn returns without corporate control, which for most traders is precisely what they seek.

The moral of the story: do not confuse these three instruments. Each has its purpose and implications. Now that you know the differences, you can choose more clearly what exactly you need for your portfolio.