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Stock Basics

In order to get a clear view of how the stock market operates you should become familiar with the essence of stocks themselves. Generally, stocks are issued by companies and by purchasing a share of a company stock you become one of the company's many owners. As such, you gain the right to vote on important for the company's operations issues. Additionally, as a shareholder you have also the right to receive dividends.

The most important aspect of stocks is that you are subject to limited liability. This means that if the company is under a suite and loses it, the court cannot make you pay by your personal possessions. The only thing that can happen is for your stocks to become worthless. However, exception is made for some privately-held companies.

Types of Stocks

Generally, stocks come in two varieties:

  1. Common Stocks

    Common stockholders have the right to vote on important company issues. Additionally, they have the right to dividends if the company distributes such. This is the type of stocks that is generally sited on the media and is most commonly held by the public.

    Common stocks are famous for their liquidity. This is so since most large companies trade on daily basis their stocks, which in term creates opportunities for the investors to buy and sell shares and thus generate profits.

  2. Preferred Stocks

    This type of stocks is famous for its regular dividend paying. Additionally, if you are a preferred stockholder, you will be the first to be paid when the company distributes dividends.

    Since they are a preferred tool for ensuring regular income, investors should look for companies that issue preferred stocks for the purposes of giving back some of their profits in the form of dividends to its shareholders.

Finally, no matter which type of stocks you will purchase you should remember that they represent ownership of the company that has issued them. Thus you become an owner of the company and as such you have voting rights and the right to gain your proportional share of the profit.

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