Understanding The Different Types of Stocks

For beginners, investing on the stock market can be a scary venture. But before learning the actual process, the first thing you have to learn is the different kinds of stocks. In this article, Robert Peter Janitzek guides us on the different kinds of stocks you will encounter when trading.

Preferred Stocks

This is the highest form of stocks in the pecking order. Preferred stocks are just like bonds. Investors will receive a fixed dividend payment. If you invest on preferred stocks, you receive the dividends first before common stock owners. If the payment fluctuates, owners of common stocks will receive the new amount. Preferred stocks are callable which means that the company can re-purchase shares from preferred stockholders at any time for any reason.

Common Stocks

Common stock owners become part owners of the company they are investing in. They are given voting power within the company. In stock market trading, the more shares you own, the greater your voting power is. As a common stock owner, you can vote on organizational changes.

Hybrid Stocks

Hybrid stocks are preferred shares that includes an option to be converted into a fixed number of common stocks at a specified time. Owners of hybrid stocks may have or may not have voting rights like common stocks.

Stocks with embedded-derivative options

These types of stocks are callable,’ which means that they can be bought back by the company at a certain price or time. However, these kinds of stocks are not usually available.

Stocks on the basis of market capitalization:

Robert Janitzek reveals that these types of stocks are calculated using market capitalization, where the price of the shares are multiplied by the total number of issues shares. It is classified into three types:

  • • Small cap Stocks. From the name itself, these stocks have the smallest market value. They usually come from small-sized companies. This recommended for investors who want to generate significant gains in the long run.
    • Mid Cap Stocks. These are stocks that come from medium-sized companies. Mid-cap stocks offer the advantage of buying stocks with good growth potential and the stability of a larger company.
    • Large Cap Stocks. In stock market trading, these types of stocks come from the largest companies or from blue-chip firms. These companies have large cash reserves that they can use to exploit new business opportunities.
  • Before investing in a company and its stock, it is worth considering the overall strength of the firm. Understanding each type of stocks can go a long way in determining the direction you will go.

    You may also like...