The stocks are the parts of a listed company. Through IPO, the company sells part of its shares to obtain liquidity and the owners of the shares - also called shares - become shareholders. The shares are then resold on the stock market.
Equity prices are driven by corporate earnings and earnings expectations.
If traders think the company’s earnings are high or will continue to rise, they push the stock price higher - traders aim to make money by buying a low-priced stock and reselling it when it is higher.
Conversely, if a company does badly, the shares decline in value and shareholders lose some or sometimes all of their investment.
Another way that shareholders make a profit from equities is the dividend offered by the company. Generally, these are quarterly payments distributed to shareholders on the basis of each share owned. The company’s board of directors pays dividends based on the profits recorded. It is a way to reward the shareholders, who are the true owners of the company, for their investment.
Types of stocks
There are two types of stocks, common and preferred.
The value of these securities depends on how they are traded on the market.
Common stock holders can have a say in the company’s decisions.
Corporations can also issue preferred stock, which have the same characteristics as common stocks and bonds.
Their value rises and falls along with the prices of the company’s common shares. However, they are like bonds in that they offer a fixed return.
In addition to these two types of stocks, there are other ways to classify stocks. Equities are grouped according to the characteristics of the companies that issued them. These different groupings respond to the various needs of shareholders.
Stocks and Market Capitalization
Market capitalization is the total value of the company on the stock market or the price of the stock multiplied by the number of shares outstanding. There are three types of stocks based on the value of the company:
- * small cap stocks
- * mid cap stocks
- * large cap stocks
The equity sectors
Stocks are also grouped by sector:
- * Commodities - companies that extract natural resources.
- * Conglomerates - companies that work in different industries.
- * Consumer Goods - companies that produce goods for sale to the public.
- * Financial - banking, insurance and real estate.
- * Healthcare - health care provider companies, medical equipment suppliers and pharmaceutical companies.
- * Industrial Goods - production.
- * Services - companies that offer goods to the consumer.
- * Technology - computers, software and telecommunications.
- * Utilities - electricity, gas and water companies.