Understanding Different Types of Stocks

Stocks are the shares in the stock of a company that is normally sold to the general public. In American English, “stock” is also referred to as the “common stock.” A single share of this stock represents tiny fractional ownership percentage of the company in whole in proportion to its number of outstanding shares. The company issues the stock as a method for ensuring that the company’s equity (the difference between assets and liabilities) increases over time.


One of the many purposes of issuing common stock is to finance expansion or acquisition. It may also be used as a way to give the owners an opportunity to increase their ownership shares over a relatively short period of time. Once the company issues common stock to the public, all existing shareholders receive a notice of “outstanding.” They can then exercise their option to buy additional shares of common stock by making a call to the company. This gives them the right to immediately sell (or delist) their shares from the company and take their money with them.

For the majority of corporations, however, dividends are the main source of income. Ordinary profits are less than one-fifth of one percent of shareholder’s equity in a company. Dividends are received from the corporation’s stock for operations during a specific year or period. The money earned by a corporation by dividends is usually paid out to shareholders in the form of a dividend. There are certain restrictions on how much money can be paid out of profits, depending on a number of factors such as the amount of shares originally issued and the amount of profit earned.

Growth stocks are considered value stocks. A company whose earnings potential is growing is often considered a value stock. Value stocks are generally safe, secure, and have the ability to easily recover their initial investment, especially if the market turns down. A value stock may not pay as much as other stocks in the same category, but it generally offers higher dividends. Value stocks tend to stay steady, which makes them a good choice for longer term investors. However, because they have a lower initial price, they will usually not see very much growth.

Preferred stocks are issued by a corporation when they need to raise funds. Usually, preferred stocks are considered a high risk buy due to their uncertain financial future. The price of preferred stocks will appreciate when the company makes progress in operating its business. The value of a preferred stock will decrease, however, if the company fails to meet its financial obligations.

Finally, penny stocks are share offerings from companies that are new on the market or smaller organizations. Penny stocks are considered by many to be the lowest risk type of share available to investors. Generally, penny stocks are offered by start-up companies that are still developing a business plan and have not proven themselves in other markets. Although many people fear these types of shares, they can provide a lot of profits over time. As with any investment type, it is important to know what to look for in these stocks.

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