The stock market is a place where companies are sharing a fraction of their company’s ownership by selling their stocks to investors. If an investor holds the stock for more than one year, they will also be entitled to the dividend. The dividend is small monetary gift given to investors, quarterly to yearly from the company profit as an incentive for holding buying company shares. Companies exchange a fraction of ownership to investors in order to have a capital to run their business. The investors will get money from the dividends as well from the stock if the company becomes profitable those shares rise. Different types of stock market exchanges are the NASDAQ, AMEX, NYSE, OTC, and BB. Today we will be learning about different types of stock and the terms that come with it. Let’s get started!
The Difference between Common and Preferred Stock
Stocks are divided into two types; the preferred stock and the common stock. The preferred stock is a stock that pays a fixed share to investors. It is more like a fixed salary every month. The common stock is where the share or the dividend will into play depends on the progressiveness and profitability of the company. Common stock allows investors to have voting rights, which allows them to participate and decide for the betterment of the company. Preferred stock has fixed dividends no matter what happens to the company’s profits.
Large Cap Stock
Large capitalization stock known as large cap stock for short refers to big corporations that have large capitalization. They require a larger slice of their company’s ownership, which also means that the investors will have a larger dividend. This attracts huge amounts of investors because the larger companies are more stable than smaller companies thus, less risk.
Small Cap Stock
Small capitalization stock or small cap stock for short has small capitalization. This type of corporation offers smaller investments to a smaller amount of investors. Investors choose this type of stock because they expect that the company will grow and have larger returns in the future. An example of this would be a small company might have a new product that everyone needs and will ensure the company rapid growth.
Value Stock his has fewer opportunities to grow in the market but does provide stable profits. It is called value because the actual worth of the company does not affect the price of its stock in the market. Value stocks are usually affected by a technical outlook. The stock is usually based on strong financials but sometimes the principle stock value may be at risk based on the effects of inflation.
Growth stock allows investors to buy stock that sometimes may be unstable but has huge growth potential to give substantial returns. The market will value the price of the company through speculative growth and earnings compared to the actual worth which assessed on its book value.