What are Stocks?

A stock is a partial ownership in a corporation. When you purchase shares of a stock, you purchase ownership in that corporation, with rights to share in its profits. 


So why does corporations sell its ownership? When a corporation needs to raise money for expansion or improvements, they will sell shares on the open markets. 




There are two (2) types of stocks traded in the market – Common and Preferred.


Common Stocks – These stocks are usually purchased for participation in the profits and control of ownership and management of the company. Owners typically are entitled to vote on the selection of directors and other important matters as well as to receive dividends on their holdings. However, they have the last claim on dividends and are the last to collect in case of corporate liquidation.


Preferred Stocks – These are stocks issued by a firm in which shareholders are given preference over common stockholders. They have limited rate of return or dividend and a specified limited redemption and liquidation price. Preferred stock usually carries no voting rights.