What is a Stock?
You must have heard the term stocks quite frequently. They are a form of financial securities that represents a part-ownership in a company. Stocks are a way to own a percentage or fraction of the company that provides certain rights to the stockholder. When you own a stock you get a certificate, proving your ownership. This certificate is stored digitally in your demat account. Investors own stocks so that they can sell them to gain profit once the company increases in value which helps its stock prices to increase in value as well.
What is a Share?
A share represents a single unit of stock. It is the smallest denomination in which the ownership of the company is represented. We can understand this better with an example. If a company DEMO capital has issued a total number of 10000 stocks in the market, and you own a single share of the company then you own 0.01% of the company. As the price of each share increases, your investment value will increase as well.
Stock vs Share: Key Differences
| Point of Comparison | Stocks | Shares |
|---|
| Definition | Stocks represent part ownership of a company A stock is a financial instrument representing part ownership in single or multiple organizations. | A share is a single unit of stock. It’s a financial instrument representing the part ownership of a company. |
| Denomination | The value of two different stocks can be different | The value of each share of a company will be the same |
| Paid-up Value | Stocks are always fully paid-up | Shares may or may not be fully paid-up |
| Original Issue | Stocks are not a part of the original issue; shares are later converted to stocks | Shares are a part of the original issue |
| Types | Stocks are usually divided into two major types- common and preferred stocks. These categories can be further divided into growth, value, income, blue-chip etc., | Shares are categorized into common shares and preference shares. |
Types of Stocks
Stocks can be divided into further types. Let’s have a look at the most popular types of stocks, that are commonly used in the stock market.
Common Stock : Common stocks offer voting rights to investors; they can vote on important company decisions. They also offer the chance of dividend yields in some cases.
Preferred Stock : Although all companies issue common stock, preferred stocks are shared by some. Preferred stocks guarantee dividend payments to their stockholders. In a situation of the company getting liquidated, preferred stockholders would be compensated.
Large-cap stocks : These are stocks of companies that have a good stronghold in the market and contribute to a large share of the market capitalization. Usually, these are stocks of companies that have more than 20,000 crores of market cap. Large-cap stocks have been a safe investment option.
Mid-Cap Stocks : Mid-cap stocks have a market cap between 5,000 crores and 20,000 crores. They have a higher growth potential when compared to large-cap stocks. They are also more volatile in nature when compared to large-cap stocks.
Small-Cap Stocks : They are way more volatile than mid-cap stocks and have a market capitalization of less than Rs. 5,000 crores.
Growth Stocks : A growth stock is a stock that grows at a higher average than the market. These companies believe in reinvesting their profits and they dedicate a major chunk of their profits to reinvesting, paying fewer dividends in the process.
Blue-chip stocks : Blue-chip stocks are the elite among large-cap stocks, that have decades of a good reputation preceding them, with great dividend yields, and return on investments over the years.
Types of Shares
Shares can be broadly categorized into two types: Equity or Common Shares and Preference Shares.
Equity or Common Shares : These are the most fundamental type of shares issued by companies. They are highly traded in the market and usually provide voting rights to investors. Equity shares can be further classified based on their definition, returns, and share capital.
Preference Shares : As the name suggests, these shares are preferred over any other share. Preference shareholders are also prioritized in the event of liquidation.
Benefits and Risks
The benefits and risks of investing in the stock market are aplenty. Recent trends suggest that the benefits exceed the risks. Stock market investing has emerged as one of the most prominent ways of growing your wealth in recent times. The benefits of investing in the stock market include diversification, as you can diversify your wealth by investing in stocks , mutual funds, ETFs, government-offered bonds , non-convertible debentures, futures and options trading , etc.,
The primary risk associated with the stock market is volatility. Stock market is usually volatile in nature and if not handled carefully, can result in losses. It is also important to avoid any random stock tips and concentrate on expert advice only while investing or trading in the stock market.
How do people make money in stocks?
People make money in stocks by buying and selling them. This is known as delivery trading where you buy stocks, hold them till their prices rise and then sell them to make a profit out of them. Apart from simple buying and selling, there are other ways people make money as well. Intraday trading is another popular form of making money by taking positions on stocks and selling them on the same day, to book profits. Traders identify patterns in the market and cash in on such scenarios with the help of leverage to make money. Derivative trading is also popular in the stock market where traders trade in futures and options markets.
As an investor, you can also make money by investing in mutual funds, index funds, bonds, and debentures. To explore these options, install the Bajaj Broking app
Get your stock investments right
Stock market investments are a great way to grow your capital and make the most of emerging businesses. The growth of investors in the stock market in recent times has fascinated one and all. However, just investing may not be the solution. Investing it right is the key to succeeding in the stock market. Some important points you should keep in mind before investing in the stock market are listed below:
- Find the right broker: A good stockbroker will give you a variety of options to invest in. A simple and secure platform, that gives you all the necessary tools to invest.
- Research Well: Researching before investing is a must. As you are risking your hard-earned money, it is important you do due diligence before investing.
- Use Modern Tools: With stockbrokers like Bajaj Broking, you get advanced feature of investing through expert advice. This saves time and brings in more value to your investments.
- Choose the right stocks: Every investor/trader must choose stocks wisely. Stocks with high liquidity are preferred. Identifying the right time to invest in stocks is critical as well.
- Plan Diligently: You should plan your targets for profit and losses in advance and stick to your strategies. Remember there is no guaranteed success in the stock market and you should invest according to your risk appetite.
