Learn About the Two Main Types of Stocks

Stock is simply all the stocks held by a company. In simple terms, the stock is also referred to as ‘common stock’. A single share of stock actually represents a fractional ownership in percentage to the total number of outstanding shares. Stocks come up for sale to the general public either through a company’s primary dealer or via an agent. When they are sold, the price per share goes up or down depending on the overall value of the stock. These shares represent security within the company and their ownership is limited.

The ownership structure of a corporation varies according to its nature and purpose. Mutual funds, for example, are comprised of many different stocks with varying ownership interest. The stocks can be bought and sold according to the needs of each investor. The main objective of a company is to return the invested capital and generate profits.

Stock ownership is very diverse. Some stocks are preferred; others are common. A few, like mutual funds, are both owned and operated by the shareholders. In this case, one person is generally responsible for the management and investment of his funds.

The shares are often issued from a corporation in several distinct forms. One form is common stock. Common stocks are issued from the company to all the shareholders. These stocks are usually easily traded on the stock markets. They represent a very small portion of ownership in the corporation.

Another type of stock is preferred stock. Preferred stock allows the owners to dividends and capital gains. The ownership structure in this case is more complicated than that of common stocks because the shareholders do not normally vote to approve the amount of dividends and capital gain payments they will receive.

There are many advantages to preferred stock certificates. This type of stock is always listed on the stock exchange; therefore, it provides potential investors with knowledge of what the corporation’s business is doing. Also, unlike common stock, preferred stock does not have to be voted in any special manner before it can be sold. Lastly, there are no restrictions placed on dividends or on how the corporation may spend its money.

Other types of stocks are unlisted stocks. Unlisted stocks do not have voting rights like listed stocks. Unlisted stocks are often given only after the company becomes profitable.

The second main type of stocks is stock options. Stock options are securities that give owners the right to purchase additional shares of stock at a later date. However, they also have restrictions. Options are not traded on the stock market, but rather on particular exchanges.

The various exchanges vary according to the financial health of the company. The New York Stock Exchange and the NASDAQ are two popular stock exchanges where most new and existing investors can buy stocks. There are other large stock exchanges, including the Nasdaq, in the United States and over the world.

Back To Top