This article shows you what stock market is, including basic guides to the types of stocks and how stocks traded.
What does stock market means?
The stock market is like a huge auction where people buy and sell pieces of paper called stock. The place where people meet to buy and sell stocks is called the stock market.
Types of stocks
There are mainly two types of stocks:
- Common stock
- Preferred stock
Common Stock
Common stocks are securities that represent part-ownership of a company. Owners of common stocks represent ownership in a corporation and share a portion of profits (dividends). As owners of the corporation, common stock owners have the right to get one vote per share to elect the board members. The owners of common stock have limited responsibility. They are not responsible for the company in the event of bankruptcy.
Common share almost have the highest return among all the investment. The high return comes at a cost with the high risk. Common share holders have the last claim on a corporation's assets if the company goes bankrupt and liquidates. Thus, the stockowners run the risk of both only paid back with part of their original investment and long time waiting for the settlement because of legal complications.
Preferred stock
Preferred stock offers investors certain advantages over common stock. Owners of preferred stock receive a fixed dividend that is paid before any dividends are paid to common shareholders. And in the event of bankrupt and liquidates, the preferred stock holder have priority over common stockholders in the distribution of corporate assets. But the disadvantages of preferred stock over common stock include that preferred shares holders have no voting right and the preferred shares have less potential for appreciation. Generally, there are four different types of preferred stock: convertible preferred stock, cumulative preferred, on-cumulative preferred and participating preferred.
How stocks traded?
Stock exchanges are places where most stock buyers and sellers meet and decide on a share price by trading with each other. Basically there are two ways that stock exchanges execute a trade: On the exchange floor and electronically. The three largest stock exchanges are: The New York Stock Exchange, The Nasdaq and American Stock Exchange.
