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Trading 101: What Are the Different Types of Stock

by Ragini Salampure
Trading 101: What Are the Different Types of Stock

The pandemic increased day trading as people tried to replace lost income or entertain themselves from boredom.

One trading site reported that visits to its stock trading for beginners guides quadrupled since the beginning of the pandemic. Other trading sites and apps saw significant increases as well.

If you’re getting ready to start trading stocks, you should know the different types of stock trading. That’s right, not all stocks are the same.

Many of the new stock traders don’t understand this and the nuances that come with trading stocks. They end up better off going to a than trading stocks.

You don’t have to end up in the same boat. Read on to learn the types of stock investments.

  1. Stock Classes

Corporations can decide to divide their shares into separate classes. This enables a company to have a select group of investors have more power than others.

Companies can divide shares any way they choose to. A common scenario is to have a group of shareholders with Class A stock.

A company can designate five votes per share for Class A stockholders. Class B stockholders only have one vote per share.          

  1. Preferred Stock

Preferred stocks are often compared to bonds. With preferred stocks, you have no voting power like other shareholders in the corporation.

On the other hand, you do receive dividends when the stock does well.

  1. Common Stock

This is the typical stock investment. Common stock gives you a share of ownership in the company. Your ownership share depends on how much stock you own.

The difference with common stock is that you do have voting power. On the downside, you don’t get paid dividends first. Most companies don’t distribute dividends to common stockholders at all.

  1. Restricted Stock

Restricted stocks get issued to employees as part of an employee compensation package. The main factor with restricted stocks is that an employee has to stay with the company for a certain amount of time to reap the benefits.

Restricted stocks have a vesting schedule, which means that you don’t see the value of the stocks until they’re fully vested. You can’t sell restricted stock until they’re vested. There are tax issues that you have to consider before receiving and selling restricted stocks as well.

What happens if you leave the company before the shares are vested? You’ll get a percentage of the vested shares based on when you leave the company.

For example, you are supposed to get 5,000 shares in five years and move on after year two. You’ll only receive 2,000 restricted stock units.

These are much different than stock options. Options just give you the option to purchase company stock at a specific price.  

Learning the Different Types of Stock Investments

Stock trading is so much more than buying low and selling high. It takes a deep understanding of how the stock market works.

This article starts you off by showing you the different types of stock investments. You should have enough information to determine which type and class of stock are worth investing in.

Are you ready for more hot money tips? Check out the Finance section of this site today!

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