Different Types of Stocks

Hi, this is your host Davey. You know, I did not have much knowledge about stocks at the initial period. Thanks to the helpful customer care professional of my broker, UFX Markets, I got some basic understanding of the market. I was taught about various types of stocks and the differences between them. Basically, stocks are of two types, common and preferred stocks.

Common stock is what the name suggests, the ordinary ones which we usually talk about. Most of the stocks are common stock. This type of share represents the ownership of the corresponding company and issues dividends based on the profit. Investors can elect a board of executive members, who will oversee the total management of the company. On long term basis, common stock provides the most amount of return than any other type of investment. However, there are some risks too. If the company goes bankrupt, common shareholders will not get their money until the creditors, preferred shareholders and bondholders are paid off.

On the other hand, preferred stock also represents a type of ownership of the company, but does not provide the same voting facilities as common stocks do. Preferred stockholders are guaranteed to receive a fixed amount of dividend. This is a bit different from common stock, where the amount of dividend varies according to the company’s performance. The company issuing the preferred stocks preserves the right to purchase these stocks anytime it wants. Preferred stocks could be placed between common shares and bonds. Some people consider these stocks as debt, rather than equity.