What are the different types of stocks in stock market?
There are 2 main types of stocks. Common stocks refer to those that are usually traded in the share market. It simply represent the amount a person holds in ownership of the company and the portion given in terms of dividends if required. The second type is Preferred Stock which provides the shareholder with some degree of ownership but usually do not have voting rights and a fixed dividend.
There are a few types of stock which can be traded in Bursa Malaysia which one must know. The most common stocks are known as Ordinary Stocks. When you buy an ordinary stock, you practically own a share of the particular company.
This means that you will be entitle to any profit that the company makes where they will issue dividends at the end of each financial year. Its AGM or Annual General Meeting is where you are given rights to vote in the company’s decisions and such. In most cases, ordinary stocks are the most commonly traded stocks.
A Preferential Stock is typically different from that of an ordinary stock. This is where the stockholders will receive dividends before the usual time frame of announcements of the ordinary stocks’ dividends. Preference Stock means that certain stockholders are given preferential treatment and in most cases come with a fixed dividend rate. If the company wound up, the distribution of assets of the company would first be given to the preference stockholders before the ordinary stockholders.
The Rights Issue is a type of privilege given to certain stockholders to buy stocks in a particular company which is usually below the market price. A Bonus Issue is the free issuance of stocks to a particular stockholder based on the numbers that particular stockholder currently hold. For example, if Ali owns 3,000 shares in company A, the bonus issue would be that he will be given an additional 3,000 more shares in Company A.
Derivatives is where you can trade certain securities that ‘derive’ their price from their parent company’s stock prices. Derivatives have 2 types known as Options and Warrants. Options involve 2 parties known as the writer or seller and the taker or buyer. This is where the writer (seller) writes the option and is then obligated to accept the sale while the taker (buyer) could exercise their right to buy or sell the stocks. They are not obligated in any way for the trade.
Warrants on the other hand usually ‘derive’ their price from the parent company’s stock prices. They are usually issued by financial institutions like banks and are normally classified either for investment or trading purposes.
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