Tutorial 3 : What is Stock ?

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A stock is a document issued by a company, which entitles its holder to be one of the owners of the Company. A share is directly issued by a company through IPO or can be purchased from the stock market. By owning a share you can earn a portion of the company's profit called dividend. Also, by buying and selling the shares you get capital gain. So, your return is the dividend plus the capital gain. However, you also run a risk of making a capital loss if you have sold the share at a price below your buying price.

Types of Stock 

There are basically two main types of stock: 

Common and Preferred. 

Common stock represents the majority of stock. It represents ownership in a company and a claim on a portion of profits, or dividends. The dividend amount fluctuates and is not guaranteed. Shareholders are entitled to one vote per share to elect board members, who oversee the major decisions made by the company's management. In the long run, common stock yields higher returns than most other investments.
 

Preferred stock represents a degree of ownership in a company but usually doesn't include voting rights. With this type of stock, shareholders are usually guaranteed a fixed dividend amount.