Share Market

Types of Stocks

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A stock is the original capital paid or invested into a business by its founders. It provides a sense of security for the creditors of a business as come what may, it cannot be withdrawn for the creditors (except only in case where the business is closed down). It’s different from the terms property and assets of a business as they can fluctuate in both quantity and value.

Stock is typically in the form of shares, that too in two types: Common stock and Preferred stock. In terms of being a unit of ownership, common stock carries voting rights that can be exercised in corporate decisions. Preferred stock differs from common stock in the form that it does not give any form of voting rights with it. With Preferred stock you get a certain level of dividend payment before any dividend is issued to other shareholders.

Types of Stocks Common stock is true to its name, very common amongst the stockholders. By means of capital growth they yield higher returns than almost every other investment. This higher return comes at a cost since common stocks have a very rate of risk. If a company goes bankrupt and liquidates, the common shareholders will not receive money until the creditors, bondholders and preferred shareholders are paid.

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Preferred stock has some degree of ownership in a company but does not have same voting rights as that of common stock. It is very different from the common stock which has variable dividends that are never guaranteed. An advantage with this kind of stock is that in the event of liquidation, preferred shareholders are paid off before the common shareholder.

There is another form of Preferred stock called Convertible preferred stock. It includes an option for the stockholder to convert the preferred shares into a fixed number of common shares. This can be usually done at any time after a predetermined date.

Apart from the two main types of stock there can be many other forms too. Companies can customize their own different classes of stock in any way they want. This is mostly done to limit the voting power to only certain sections of the group. For example, one class of shares would be held by a select group who are given 20 votes per share while a second class would be issued to the majority of investors who are given one vote per share.

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Types of Trading

Trading can be done in several forms. To seek profit from short term trades a number of trading methods can be followed.

Day trading: is where stocks are sold and bought throughout the day with a hope that it would shoot up while its value keeps on fluctuating during the day. A day trader can hold stock during the day as he has to give away all of it before the closing of each day. He is immune to any risk at night as all his stock is given away with during the day. Day trading is further divided into Scalpers and Momentum traders. Scalper is when the trader sells or buys in large volumes to earn a small per share profit. Whereas, momentum traders identifies and trades stocks to buy at bottom and sell at top.

Types of Trading Swing trading: have a slightly longer time horizon than day traders for holding a position in a stock. It also has the capability of providing higher returns than day trading. However, the swing traders assumed overnight risk.

Position trading: is similar to swing trading but with a longer time horizon. These traders identify stocks where the technical trends suggest a large movement in price.

Online trading: can include long term investors, as well as day, swing and position traders. They use either an Internet connection or a direct access online trading platform to access and execute trades with Web based brokers.

There are certain golden rules to be followed while trading. You must divide your capital into few equal parts as it is foolish to risk your capital on one trade. Trading is suitable for active and highly volume stocks or futures. It’s important to stick to management rules and not to indulge in over-trading. You must never get into market just because waiting makes you anxious. It works the other way round too, that is, never get out of the market because you have lost your patience.

Trading is tough job and thus it should be left to the market to decide. Also a losing trade must be avoided to make small profits and big losses. Traders must always trade with genuine risk capital and should trade within their capabilities, financial and otherwise too. You tend to get greedy in matters of money, but trading is safe when it’s kept free of greed or fear. For traders having self conviction is important.


Different Kinds of Investments

There are different types of investment with each having its own level of risk. Risk is inevitable as investment is about taking a risk with your money by investing in assets that could rise or fall in value. Investments are very different from savings as they are typically designed for a longer term and are unstable in nature.

There is one type of investment that helps the investor in building his money. According to your pre-determined goals, it helps you in building money. There is another type of investment that is designed to return the money of the investor pretty efficiently to attain his goals. Investments like Bonds, stocks, mutual funds, and more are common types.

Discuss them in detail below:

Different Kinds of Investments Bonds: grouped under general category called fixed-income securities, they are used to refer to securities that are found on debt. While purchasing a bond you are lending your money to a company or the government. The bond in return pays you interest on your money and eventually pays you back your entire original amount. Bonds are safe and virtually guaranteed or risk-free. But, less risk leads to less potential to grow.

Stocks or equities: units that make you a part-owner of a company that you hold stock of. Stocks are volatile but get you dividends whenever your company does well. Many stocks don’t pay dividends, wherein, you can make money only if the stock increases in value.

Mutual funds: collection of stocks and bonds. Buying mutual funds is pooling money with a number of other investors which allows you to choose your own specialty in the funds. These funds can be invested without the time or experience needed to choose a good and stable investment.

There are basically two types of securities or investments: stocks and bonds (equity and debt). While many investments fall into one of these two categories, there are many alternative vehicles. These represent the most complicated types of investing strategies. The alternative investments are Options, Futures, FOREX, Gold, Real Estate, etc.

Once the investing starts, it does not really bother what you invest in. The alternative investments are generally high-risk or high-reward in nature. These securities are much more speculative than stocks and bonds. They make good profits but require some specialized knowledge. Thus, it’s important that the new investors focus on investing in equity and debt rather than trying other options of investment.


What are Investments

There are separate definitions for investment in finance and economics. In finance, investment is the process of putting money into a place/object with an expectation of gain. Through analysis it has a higher degree of security and return on the principal amount within an expected period of time. One can even call it saving or deferred consumption.

There are times when speculative schemes are made to sound like investments. News sources and promoters report on speculative financial transactions like stocks, mutual funds, real estate, oil and gas leases, commodities and more as investments. This is where the investor must be smart to notice and steer away from these things. Money has to be invested wisely and it’s important to invest in the right place and at the right time.

What are Investments To avoid speculation, an investment must either be directly backed by sufficient collateral pledging or insured by sufficient assets pledged by a third party. A thoroughly analyzed loan of money that is backed by collateral with greater immediate value than the loan amount is also considered as an investment.

In the same light, investing is a method of buying assets in order to gain profit in the form of easily predictable income such as interests, dividends and appreciation over a long-term. It is not about keeping your money stacked in one place hoping that the investment you made will be the next big killing. It has nothing to do with speculative financial transactions. It is all about taking reasonable risks to harvest a very hefty and continuous reward.

Investment is not only meant for those who want to earn good bucks but for everyone. It helps you use your own strategy and build a good backup solution in case of a severe financial risk or inflation. It could be in any form, either bonds, mutual funds, certificates of deposit, stocks etc for a creating a good wealth. If you don’t want extra money for yourself then you might as well keep it for your coming generations. The surplus could well enough be given to the needy.

Also, no investment is big or small. Investments can start from any price. There are a lot of investment options. As and when one grows in confidence, investments can start being varied. It’s funny, but good to notice that the money you earn on your investments accumulates faster than your salary.


What is a Share

A share can be summed up as a divided-up unit of the value of a company. These units are prone to fluctuation as they go up and down for various reasons. For example, if a company has a worth of $100 million which has a 50 million shares in issue, then each share comes down to $2 which are never stable.

What is a Share In financial terms, share is a unit of account for various financial instruments including shares, mutual funds, limited partnerships etc. They are documents that are issued by a company entitling its holder to be one of the owners/ the owner of the respective company. They can be bought either via a personal meeting within the board of owners or by public listing. Once obtained, they sometime also get you voting rights of the company.

Shares have capital values which is also called the quoted price. It moves in line with the long term dividend payment. Dividends are the profits that are distributed to the shareholders in a company. They are primarily bought by investors in hope of benefiting from a rising flow of income over a period of time.

Shares are usually sold for a capital gain. The returns you earn are dividend plus the capital gains. However, you also face a risk of capital loss, in case you sell your shares for a lower price in comparison to your buying price.

To start trading in shares, you need a broker. There are high end and small sub-brokers to deal with every kind of investor. The general investors have to identify sub-brokers for regular trading in shares. Purchase and sale of shares occurs through the broker. The plans and deals are executed once they are transmitted to the main broker.

It’s also of utmost importance to understand that a company’s share price does not necessarily reflect on the company’s worth but what the investors think of it. There are companies that trade at a higher price than the ones that are actually worth that price. Share prices are totally affected by what’s in the market. Market news or forces and general investor prices are the two factors that make shares rise or fall.

On an average, shares have been quoted to give a 10% annual return on a long term basis even though it has a very unstable nature. Once invested in shares, they reap returns even if on price, through dividends.


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