The language of investment sometimes seems designed to confuse the novice. For instance, shares are traded on the stock exchange, not the share exchange. Nobody really knows why it came to be called the ‘stock exchange’. One theory has it that it was on the site of a meat and fish market in the City and the blocks on which those traders cut are called stocks. An alternative theory has it that stocks of the pillory kind used to stand on the site. In the Middle Ages the receipt for tax paid was a tally stick with appropriate notches. It was split in half, with the taxpayer getting the stock and the Exchequer getting the foil or counter-stock. Some have suggested the money from investors was used to buy stocks for the business.
Strictly speaking, in the purists’ definition, stocks are really bonds – paper issued with a fixed rate of interest, as opposed to the dividends on shares, which vary with the fortunes of the business. However, in loose conversation ‘stocks’ is sometimes used as a synonym for ‘shares’. Just to confuse things further, Americans call ordinary shares ‘common stock’.