How Do Stocks Work? Type Of Stocks And How Are They Different From One Another

For companies, stocks are a great way to raise money to grow funds and capital or other products and initiatives. When you buy a stock of a company you are effectively buying a part of ownership or share in the company. It does not exactly mean you will sit next to Mark Zuckerberg in a meeting at Facebook if you buy a stock from Facebook. It means you get the right to vote in meetings when chosen to exercise it. Primarily, the reason to invest in the stock is to earn a return on the investment, and the return generally comes in two ways.

1. Price appreciation

This means when the stock goes up, you can sell it for a profit if you like.

2. Dividend

This exactly means payments made to the shareholder out of the company's revenue, and typically they are paid quarterly but just remember not all stocks pay a dividend.

All the stocks are not the same though. US stocks, for example, are so far the most diverse in the world. They come from a market of around 500 of the biggest companies in the world and not every single stock of these companies is the same. Each stock has a varied feature and different characteristics, which give the shareholders different kinds of benefits. A shareholder chooses his stock based on his capital, what kind of returns he expects, and on what tenure. So it is wise to know what kind of stocks are out in the market.

Domestic And International Stocks

You can categorise the stock based on the location. To distinguish them from each other most investors look at the location of the company and its official headquarters. It is important to understand that the stocks Geography category does not correspond to where the sales happen. For instance, a stock that you buy can have the company headquarter in the US but sell this product exclusively out of the country. You can see this in large multinational companies.

Growth And Value Stocks

A growth stock is a stock that has a high-risk level but at the same time a very attractive return. Growth stocks rise in demand among customers and the environment and are more interlinked with the long-term trend. And competition for this growth stock is highly intense in the market, and several times rivals disrupt the business. Investors who invest in growth stocks look for companies that have sales and profits rise tremendously quickly.

Value stocks, on the other hand, are a more conservative investment. They often show stocks already in the growth phase of the industry and take the leading space. There is not much room left to expand for them, and no new inventions are coming up. Yet, the risk involved in this stock is comparatively lesser than a growth stock. They are good choices for people who look for more price stability while setting some of the positives of exposure to stocks. Value investors search for companies whose shares are inexpensive. Value share is comparatively lower in price.

IPO stocks

IPO stocks are the companies that have recently gone public. They usually generate a lot of excitement among the investors who look to get to the bottom of a promising business concept. They are also highly volatile, especially when there is disagreement within the investment community about growth and profit. It remains private for a minimum of a year or as long as 2 to 4 years after it becomes public.

Dividend stocks

Dividend stocks or income stocks are the stocks that pay out forms of dividends. They are also referred to as shares of companies that are more mature businesses and have relatively few long-term opportunities for growth. An ideal conservative investor who needs to draw cash from an investment portfolio right away would be strongly choosing a dividend stock. An investor who would choose this stock would be and investors who have a low-risk tolerance or someone who is nearing their retirement phase and are looking out for a safe keeps out

Safe Stocks

These stock prices do not move fast or in a big amount. They are not affected by the overall market, and they come from Industries that do not get affected by the economic conditions. They offer paid dividends, and by that income can be set even during falling share prices during tough times. They are also known as low volatility stocks and operate in industries that are comparatively safer than the others.

Blue-chip stocks

These stocks come from the most reputed companies in the market. They come from companies that lead the industries. They do not provide a higher return but are known for their stability in the market. This feature makes them a favourite kind of stock for many investors. They have a high reputation in the market and hold a low-risk possibility. 

Penny stocks 

Penny stocks are contradictory to Blue chip stocks. They are highly inexpensive, of low quality, and come from companies whose stock prices are extremely low, typically less than a dollar per share. At the same time, they are highly dangerous in speculative Business models and prone to a scheme that can drain your entire investment. They are dangerous, but the benefit is that they are highly inexpensive, and you can easily afford them.

Conclusion

Portfolio diversification is a necessity if you want to be a good player in the stock market. You probably heard of portfolio diversification, it is very important to develop strong and stable investments. All of these stock classifications can plan for your diversity and investments across companies of different markets, geographies, and styles. You can have a well-balanced portfolio across various diversification and simultaneously raise money. Each stock has a different feature, and you have a wide choice to know which would best suit you.