Types of Ordinary Shares
By market profile, ordinary shares fall into the following categories:
- Blue-chip shares (first-tier shares)
These are shares of the most well-known and largest-cap companies. Blue-chip shares tend to appreciate over the long term. A key distinguishing feature is high liquidity — i.e., the ability to buy or sell quickly. Liquidity correlates closely with the free-float ratio (the proportion of shares freely tradable on the market). Generally, higher free-float means higher liquidity — and vice versa.
The term “blue chip” is subjective; there are no strict, universally accepted criteria defining which stocks qualify.
The most liquid shares on the Russian market include Gazprom shares and Sberbank shares, among others.
- Second-tier shares
These are shares that are not among the most actively traded or liquid instruments on the exchange. The designation “second-tier” is also subjective.
Second-tier shares typically do not belong to major stock indices. Most second-tier shares on the Russian market are included in the RTS-2 index.
How Much Does an Ordinary Share Cost?
An ordinary share may have several distinct valuations:
- Par value
This is the nominal face value printed on the share certificate at issuance. It is sometimes called the “stated value.” A company’s authorized capital equals the total par value of all issued shares. Par value is uniform across all ordinary shares of a given issue. It does not reflect real market value, but it may be used for calculating fees, tariffs, or commissions — especially on less-developed markets. During an initial public offering (IPO), the offer price must not fall below par value; issuers commonly set it 10–30% above par.
- Issue price
This is the price at which the share was originally sold to investors. In most cases, the issue price equals the par value. The difference between issue price and par value is termed “issue premium.”
- Market price
This is the price formed by supply and demand on the stock exchange. Market prices are determined on exchanges and reflect real-time investor sentiment.
Many factors influence market price: macroeconomic conditions, political developments, technical indicators, central bank policy, and institutional investor activity. Remember: markets have bulls (buyers) and bears (sellers). Exchange liquidity is the primary driver of price formation. Market price often approximates liquidation value.
- Book value per share
This equals the company’s total assets minus liabilities, divided by the number of outstanding ordinary shares. When market price trades below book value, it may signal potential upside — though not guaranteed. Book value is verified by auditors.
What Rights Do Ordinary Shares Confer?
- Right to dividends
Shareholders holding ordinary shares are entitled to a proportional share of the company’s net profit, distributed as dividends. However, dividend payments are discretionary — subject to board approval. Notably, preferred shareholders hold priority — usually receiving fixed dividends before any distribution to ordinary shareholders. Dividends on ordinary shares are paid only after taxes and preferred dividends are settled. The payout ratio may be zero: the company may lawfully decide not to distribute dividends based on its financial condition.
- Right to residual assets upon liquidation
In case of company liquidation, ordinary shareholders are entitled to a portion of proceeds from asset sales — but rank last in the claims hierarchy: after bondholders, creditors, and preferred shareholders. Consequently, they may receive nothing if proceeds are insufficient to cover senior obligations.
- Voting rights
Unlike preferred shares, ordinary shares generally carry voting rights on fundamental matters: electing the board of directors, amending the charter, mergers, major asset sales, or dissolution. Note: some classes of ordinary shares may be non-voting — provided this is explicitly stated in the company’s charter and permitted under local law.
- Right to compensation in case of merger or acquisition
If the board and shareholders approve a merger or acquisition, ordinary shareholders are entitled to fair compensation — either via cash buyout of their shares or exchange for shares in the acquiring entity.
- Liquidity right
Ordinary shareholders may sell their shares at any time on open exchanges or via private transactions.
Return on Ordinary Shares
Historical data shows ordinary shares deliver average annual returns of 11–12% of par value — outperforming most other asset classes. They support capital appreciation, income generation, and provide moderate inflation protection. In some cases, even small institutional investment programs begin with equity allocations.
High return implies high risk — and risk varies significantly by issuer. Shares of long-established, reputable companies carry lower risk; those of lesser-known or early-stage firms entail substantially higher risk. Using a margin account amplifies leverage — and is recommended only for experienced traders.
Technically, trading ordinary shares is identical to forex trading — same order execution, platform tools, and risk management principles.
Where to Buy Ordinary Shares?
The most common way to purchase ordinary shares is through a full-service brokerage firm. There is no minimum lot size — only the per-share price applies. However, most brokers require a minimum initial deposit of $500 to open an account.
FAQ
Do ordinary shares guarantee dividend payments?
No — dividends are discretionary and paid only after taxes and preferred dividends. The board may choose not to distribute profits.
What happens to ordinary shareholders if a company goes bankrupt?
They rank last in claims — after creditors, bondholders, and preferred shareholders — and may receive nothing from liquidation proceeds.
How is the market price of an ordinary share determined?
It’s set by supply and demand on stock exchanges, influenced by fundamentals, macro conditions, investor sentiment, and liquidity.
