Types of stock
There are two main types of stock:
Preference Stocks
Preference stocks do not carry any voting rights. They do carry ownership rights like common stock. The price of the preferred stock is decided by the company’s performance and market forces. These are also issued by the company to raise funds.
Preference shares come with a maturity period. When a company is issuing preference shares, it specifies the dividend rate, maturity and the dividend payment date.
In preferred stocks, investors get regular dividends. Preferred stock has a higher claim than common stocks in case the company goes in for liquidation. Not just liquidation, preference stockholders get preference when it comes to dividends as well. A company has to pay dividends to preference shareholders first before dividends are paid to common stockholders.
Common Stocks
Common stocks are the shares that investors refer to when they are talking about buying stocks of a company. The shares that are regularly traded in the stock markets every day are common stocks. There may be chances that a company issues only common stocks and no other type of stocks (e.g., preference stocks). Owning shares of a company gives investors the rights to the profits of the company in the form of dividends.
Common stock investors also get voting rights depending on how many stocks they own in proportion to the total number of shares that a company has issued.
Common stockholders are last in line when the company is going in for liquidation. Creditors to the company are paid first. Preference shareholders are given priority ahead of common stockholders.
Why invest in stocks?
- The most prominent reason to invest in stocks is to benefit from the high return potential in the long run. Unlike fixed income instruments that provide low returns and may not even beat the rate of inflation, stock investing allows you to make considerable profit in the long run.
- If you invest in stocks of companies that pay regular dividends, you can create a regular source of income for yourself. This is in addition to the capital appreciation of the stock.
- Stocks are ideal investments for your long-term goals and wealth creation.
- You can invest in companies that you believe in. By doing so, you get a chance to be a part of a journey that you truly appreciate and understand.
Stock Analysis
Stock analysis can be grouped into two broad categories:
1. Fundamental Analysis
The fundamental stock analysis method involves the evaluation of a business at a basic financial level. Investors use fundamental analysis to determine whether the current price of a company’s stock reflects the future value of the company.
Fundamental analysis uses different factors such as the current economic environment and finances of the company to estimate its stock value. Different key ratios like P/E ratio, P/B ratio, EPS, Dividend payout ratio, REG ratio, ROE are also used to determine the financial health and understand the true value of a company’s stock.
2. Technical Analysis
The technical analysis method involves examining data generated through market activities, such as volume and prices. Analysts following such a type of stock analysis use technical indicators and tools like charts and oscillators to identify patterns that can indicate future price trends or direction.
Technical analysts examine the historical trading data of a security and estimate the future move of the security. It is frequently used for forex and commodities.
How to invest in stocks?
Investing in stocks is not rocket science. Follow these steps to begin your investing journey immediately, and then you can learn more as you go along.
Step 1: Open a DEMAT account and ensure it is linked with a pre-existing bank account to carry out transactions smoothly.
Step 2: Sign in to the DEMAT account via the mobile-based application or web platform.
Step 3: Pick a Stock that you want to invest in.
Step 4: Make sure you have sufficient funds in your bank account to buy the shares you wish to purchase.
Step 5: Purchase the stock at its listed price and specify the number of units.
Step 6: Once a seller reciprocates that request, your purchase order will get executed. Post completion of the transaction, your bank account will get debited with the required amount. Simultaneously, you will receive the shares in your DEMAT account.
Who Is A Stock Broker?
Stockbrokers are trading experts who buy and sell stocks, shares, and securities on behalf of clients over the counter or through a stock exchange.
Such stockbrokers are mostly connected with a stock brokerage firm, and they charge a commission or fee from the client for stockbroking and managing their stocks.
Such stockbrokers know the Indian stock market well and keep tabs on the changeable trends and patterns of different stocks and shares.
Types Of Stock Broker
There Are Two Types of Stock Brokers:
Full-Service Broker: A full-service broker offers clients a broad range of stock and shares trading services, researching different stocks and shares and presenting recommendations on potential profit-making stocks.
Their roles include:
Researching the stock market in which the client wants to invest.
Studying the trend and investigating the different patterns.
Offering recommendations on which stock the client can invest in and profit from.
Other than offering advice, they also use their expertise in buying and selling different stocks and shares and stay up to date on the progress taking place in the stock market.
As full-service brokers carry out most of the work for their clients, their brokerage fee or commission is generally high.
Discount Broker: Unlike the full-service broker, a discount broker focuses only on executing buying and selling orders for their clients.
They perform the trade by charging a brokerage fee much less than what is paid for their full-service counterparts.
Such discount brokers do not offer any recommendations on the investment or offer any recommendations to their clients.
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