Before entering the market and putting in your money, it is essential that you know the various types of stocks. Actually there are quite a few types of them and we will go into their details here. But before we do that, we have to understand why people invest in the market. Of course they do this to earn a profit – but this profit too can be earned in two different ways.

• By buying them at a lower price and selling at higher – the difference being the profit margin.
• By buying them and holding on for the dividend the company announces. A dividend is actually a share of the company’s profit for the year that it shares with all those people who own a part of that company by means of its stocks.

The Different Types Of Stocks

Stocks at the very outset can be divided into 2 basic types and they are,

• Common stock
• Preferred stock

Common stock: These are the basic stocks of a company. Those who want to gain from capital appreciation or from dividends buy these stocks. Usually, these stocks do better. The owners of these stocks also have voting rights and so theoretically, they can influence the various decisions of the company such as the company’s policy, dividends, stock splits etc.

Preferred stock: The biggest advantage of these stocks is that, the dividends here are paid before the common stock dividends, but they are at a fixed percentage of the face value. But on the other hand, if the company have not earned too well in the year, the dividends may not be given at all. Then again, if the company becomes bankrupt, the preferred stock holders have preference over those who hold common stocks.

There Are A Few Other Types Of Stocks As Well And They Are

• Penny stocks
• Blue chip stocks
• Growth stocks
• Income stocks
• Value stocks

Penny stocks: These are the stocks that are extremely low priced. While in many cases quite a few of these stocks rise rapidly, but they also come with risks.

Blue chip stocks: These are the companies that have been in business for many years and are deemed stable when it comes to their earnings and liabilities. In most cases, these are the companies that pay the maximum dividends.

Growth stocks: These are the stocks whose value increases the most and the returns are high. In most cases, the company reinvests the profit for business growth.

Income stocks: There are some stocks that give higher dividends than what their market price tends to indicate and these stocks are referred to as income stocks.

Value stocks: These are the stocks that according to the investors are trading below their market price. Since the price is less than what it should be, many think that their prices will escalate soon.

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