Stocks are the securities that signify ownership the part of the company that issued these stocks and represent a claim on part of the company's assets and earnings.
Companies raise their capital by issuing stocks and entitle the stock owners (shareholders) to partial ownership of the company.
There are two main types of stocks: common and preferred.
Common stock is an equity security that entitled to its proportionate share of a company's profits or losses. Common stock usually entitles the owner to vote at shareholders' meetings.
Owners of some of common stocks can receive dividends.
Preferred stock usually has a higher claim on assets and earnings than the common shares, but generally does not have voting rights. Owners of preferred stock receive fixed periodical income before common shareholders and have priority in the event that a company goes bankrupt and being liquidated.
Preferred stock combine features of debt securities and equity securities:
- as debt security, it pays fixed dividends, which can be paid on debt (if the company doesn't have enough profit),
- as equity security, it has the potential to appreciate in price.
The details of each preferred stock depend on the issue.
Most people make money from stocks by either buying, holding, and collecting dividends, or by buying low and selling high.