Online stock trading can be tricky, especially since many people go into without having a real understand of what a stock is. It's true! Most people drop the word stocks in casual conversation like everyone knows what a stock is, but in fact, very few people have a real understanding of the stock market. In this discussion I'll provide you a foundation for comprehending the primary types of stocks.
Common stock is the most common kind of stock, and that isn't a pun. Whether they realize it or not, when people discuss stock, they are most often deliberating common stock. Most issued stocks are this kind of stock. Through common stock, shares provide shared ownership and shared profits in dividends.
Capital growth makes common stock the best earner in the long term. Yet this comes at the expense of greater risk than most investments. Just as a sample, what do you think happens when a company must liquidate after going bankrupt? Common shareholders will not obtain their payout until after creditors, preferred shareholders and bondholders.
The second main kind of stock is the preferred stock. This type of stock enjoys a greater ownership role in the corporation. This doesn't mean it has the same voting rights, but it usually does provide guaranteed fixed dividends.
Note that this is a significant advantage over common stock because common stock features dividends which vary and thus never are guaranteed. Additionally, whereas earlier we mentioned that common stock shareholders were paid after several other parties, preferred stockholders are paid off earlier in the case of liquidation. And lastly, preferred stock can on occasion be callable, which means the corporation may exercise the option to buy preferred shares from preferred shareholders for a premium.
People frequently refer to preferred stocks as debt not equity. It might help to see them as a mix of a bond and a common stock.
While preferred and common are the primary types of stock, corporations can create separate classes of stock for separate purposes. The obvious reason for this classification system is so that the corporation can control voting rights, giving votes to one class of stocks and not the other.
So even among preferred stocks, you might have two separate classes of stocks, one which provides several votes per stock and another which provides only a single voter for every share of stock.
And while it may belong in a different conversation altogether, the last type of stock you'll see discussed among online traders is the penny stock. Penny stocks, also referred to as micro cap stocks when classifying them by market capitalization rather than stock price, are really just normal stocks traded at a lower market value. Any stock can become a penny stock and many micro cap stocks become standard stocks traded on NYSE or NASDAQ.
It can be confusing to read about penny stocks online. Partially because most people don't really know what they're talking about, but also because you see the terms micro cap stock and penny stocks used identically. In fact, the term micro cap stock refers to a stock with market capitalization in the 50 to 250 million dollar range while a penny stock is any stock under 5 bucks. And there is one final way to distinguish a penny stock: it is usually traded via the Pink Sheet or the OTCBB rather than NYSE or NASDAQ.
Regardless of which term you use or how you choose to label them, the market for penny stocks is more likely to be influenced and manipulated through fraud than stocks traded on the NYSE or NASDAQ.
Common stock is the most common kind of stock, and that isn't a pun. Whether they realize it or not, when people discuss stock, they are most often deliberating common stock. Most issued stocks are this kind of stock. Through common stock, shares provide shared ownership and shared profits in dividends.
Capital growth makes common stock the best earner in the long term. Yet this comes at the expense of greater risk than most investments. Just as a sample, what do you think happens when a company must liquidate after going bankrupt? Common shareholders will not obtain their payout until after creditors, preferred shareholders and bondholders.
The second main kind of stock is the preferred stock. This type of stock enjoys a greater ownership role in the corporation. This doesn't mean it has the same voting rights, but it usually does provide guaranteed fixed dividends.
Note that this is a significant advantage over common stock because common stock features dividends which vary and thus never are guaranteed. Additionally, whereas earlier we mentioned that common stock shareholders were paid after several other parties, preferred stockholders are paid off earlier in the case of liquidation. And lastly, preferred stock can on occasion be callable, which means the corporation may exercise the option to buy preferred shares from preferred shareholders for a premium.
People frequently refer to preferred stocks as debt not equity. It might help to see them as a mix of a bond and a common stock.
While preferred and common are the primary types of stock, corporations can create separate classes of stock for separate purposes. The obvious reason for this classification system is so that the corporation can control voting rights, giving votes to one class of stocks and not the other.
So even among preferred stocks, you might have two separate classes of stocks, one which provides several votes per stock and another which provides only a single voter for every share of stock.
And while it may belong in a different conversation altogether, the last type of stock you'll see discussed among online traders is the penny stock. Penny stocks, also referred to as micro cap stocks when classifying them by market capitalization rather than stock price, are really just normal stocks traded at a lower market value. Any stock can become a penny stock and many micro cap stocks become standard stocks traded on NYSE or NASDAQ.
It can be confusing to read about penny stocks online. Partially because most people don't really know what they're talking about, but also because you see the terms micro cap stock and penny stocks used identically. In fact, the term micro cap stock refers to a stock with market capitalization in the 50 to 250 million dollar range while a penny stock is any stock under 5 bucks. And there is one final way to distinguish a penny stock: it is usually traded via the Pink Sheet or the OTCBB rather than NYSE or NASDAQ.
Regardless of which term you use or how you choose to label them, the market for penny stocks is more likely to be influenced and manipulated through fraud than stocks traded on the NYSE or NASDAQ.
About the Author:
Whether you are a savvy veteran of the stock market or a total freshman, you should travel to the Where To Buy Penny Stocks micro cap resource to get a finer hold on the science and art of online stock trading. You may just require a tiny bit of additional information to master buying penny stocks or you may still be learning where to go for cheap online trading.
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