Stocks, also known as shares or equity, are all the stocks held by an individual or organization that is individually owned. In common usage, the term stock refers only to these stocks. In American English, however, the word stock is used to refer only to those stocks. Each type of stock has different characteristics; here are some of them. To better understand these, let’s take a look at each type and see how it compares to its opposite type, option or penny stock.
Common stock: The most common types of stocks are those issued by companies that are publicly traded. All publicly traded companies issue stock for sale and the price of this stock fluctuates depending on the general market conditions. For instance, when a company releases new products, the cost of these new products will drive up the price of the stock. Sometimes, other factors, such as news reports, affect the price of shares as well.
Short-term stocks: These are shares that can be bought and sold within a short period of time. The typical duration of a short-term stock purchase is a few days to a week. There are many advantages of short-term stocks. An investor may want to purchase these stocks when they first appear on the market because they offer the investor the opportunity to buy at a lower price, possibly in the near future.
Long-term stocks: Long-term stocks are usually held by large financial institutions such as banks, insurance companies or mutual funds. Investors can buy these stocks throughout the year as long as they follow the guidelines set by the investment firm for trading. However, investors may want to wait until the stock market becomes more stable. Traders and banks hold long-term positions on the companies that issue them.
Most of today’s investments are made by long-term investors. Because these types of investments yield higher returns, it is very common for families, business establishments and professionals to invest in the stock market. A typical scenario is for an investor to buy a stock market index fund and hold the investment for several years. If the company is thriving, the investor will make money. If the company does not perform as favorably, the investor will incur losses.
Dividends: Many large corporations issue dividends to their stockholders. A dividend is a portion of a company’s profits that is paid directly to the shareholder. This payment is usually made on a quarterly basis. If you are not a regular dividend holder and are interested in getting your hands in on some stocks but do not want the high cost of owning them, you can invest in common stock and pay the dividend at your own discretion.