Different Types of Stocks and Stock Markets
Stock is the shares in which ownership of a company is divided in an agreement between two or more shareholders. In ordinary English, the words refer to shares of stock that are issued and traded on the open market. Each share of stock represents a fractional share of a company in terms of number of units. There is a limit on the number of units that can be owned by any one shareholder. The price per share (PPS) is determined at the time of issue and this amount includes the discount rate of 3%, if any.
Stock is not the same thing as property, in the sense that the value of stocks may change over time. However, a shareholder will not lose his holding interest in a company if the corporation he owns becomes unprofitable. To protect his investment, most corporations use common stock, preferred stocks, or common stocks and preferred stocks as a method of issuing notes, such as debt and equity securities, to allow them borrowing funds from investors when needed.
Stocks are sold in the form of shares on a company’s public stock exchange. This usually occurs when the company is first publicly listed and begins trading for profit. When the stock price increases, so does the number of outstanding shares and the corporation then sells some of its units to raise capital for new venture. A secondary offering is sometimes made in stocks to raise additional capital for expansion.
New companies that are unable to raise capital through other means may go through an initial public offering, also known as an IPO, to raise funds. An IPO is an offer made by the company to sell a specified amount of its stock for money upfront. Investors participate in the IPO in return for a certain percentage of the total stock price. Once the company completes an IPO and files its financial statements with the Securities and Exchange Commission, it is able to trade publicly. There are also other types of initial public offerings, including a sale of securities by a private company to raise funds. Private company offerings are not typically made as often as public stock exchanges.
Bonds are issued by corporations to finance specific projects. Bonds represent a future repayment of funds. For example, if a corporation wants to build a plant or expand its operations, it can issue bonds that pay for the costs over a certain period of time. The specific features of any bond will vary, depending on what the corporation needs to finance. Commonly, bonds are secured by fixed assets, such as corporate buildings or equipment.
Stocks represent ownership interests in a company. This represents the right of an individual or entity to buy (or sell) a specific piece of property. Unlike bonds, stocks can be bought or sold freely by anyone. As with any investment type, stock markets should be treated with care and only purchased under a carefully monitored and planned set of circumstances.