purchase stock - Stock2. Different types of stocks3. Stock brok

Stock: Stock is the capital raised by a company through the issue and sale of shares. A person or organization that owns a share of the stocks is known as a stock holder. The following article tries to familiarize the reader with different aspects of stock purchase.

Different types of stocks: The two main types of stocks are common and preferred stocks.

• Common stock or ordinary shares are stocks commonly held by stock holders. Common stock holders have the right to vote and get dividends.

• Preferred stock or preference shares give the stock holders some preference in distribution of dividends and assets. But generally they have no voting rights.

• Dual class stocks Treasury stocks are the prominent other types of stocks.

Stock brokers: Stocks can be purchased through a stock broker who is enlisted with a stock exchange. A stock broker is a person or organization who purchases and sells shares on behalf of a customer and charges a commission for his services.

Types of brokers: There are two types of brokers viz. Full service brokers and Discount brokers. Full Service Brokers charge a higher commission for trade because they offer some personalized service and investment advice.

Discount brokers charge considerably less because they dont offer personalized services. Online brokers come under the category of Discount brokers.

DIFFERENT METHODS OF STOCK PURCHASE: A purchaser can purchase stocks in different ways.

PURCHASE THROUGH A BROKER: A purchaser can buy stocks through a stock broker. Initial share of the stock of any company has to be purchased from a stock broker.

DIRECT PUBLIC OFFERING: Purchasers may buy stocks directly from the company at the time of direct public offering or initial public offering.

DIRECT PURCHASE FROM A COMPANY: If an investor owns at least one share of a company, he can also purchase stocks directly from a company through the companys investor relations department.

FINANCING STOCK PURCHASE: Stock purchase can be financed in two main ways: Purchasers can buy stocks with their own money or they can buy on margin. Buying on margin means to buy on money borrowed against stocks in the same account. The stockbroker can sell these stocks if the buyer can not repay the borrowed amount.

METHODS OF JUDGING A COMPANY: It is prudent to judge a companys worth before purchasing its stock. There are two methods of judging a company.

(1) Fundamental analysis which involves analyzing a companys financial statements by looking closely at its health, management and competitive advantage.

(2) Technical analysis judges the share prices only as it believes that all relevant information is stored therein.

TECHNOLOGY AND STOCK TRADING: With technology, the stock market has grown greatly and various effective and efficient ways of stock trading have evolved. With the advent of the Internet, there have been ground breaking changes in stock trading. For example, the practice of Day Trading, where purchase and sale of stocks are conducted in the same trading day and all positions are closed at the end of the trading day before the markets close, has also been made possible on account of online trading.

BENEFITS OF ONLINE TRADING: Stock purchase has become easier, faster and cheaper through the process of online trading. Now it is possible to place an order for purchase of stocks from the comforts of ones home. Judging the performance of a companys stock has become easier as the investor can directly see it on his networked computer. He does not have to depend on external and sometimes unreliable information to make his purchases. The time for a transaction has reduced a lot with the advent of online trading. A transaction takes place within seconds of placing an order.

ONLINE BROKERS: Prior to the advent of online trading, the stock exchange could be accessed by wealthy investors only, as they could pay high commissions to stock brokers. With the advent of the Internet, a new type of stock brokers has arrived, who offer their services online in the form of website interface. Their commissions are a fraction of the commission charged by Full Service brokers and transactions are very fast. Thus online trading has made the stock market accessible even to small investors. Online brokers however do not offer advice or personalized services.

ONLINE STOCK PURCHASE: With the advent of online trading, the client does not have any personal contact with his stock broker, but with the stock brokers system, which performs all the stock broking functions. The purchaser has to place an online order with the stock broker or his system for making a purchase. The brokers system can then make the best possible purchase for the buyer, after giving due consideration to the size and availability of the order. There is a time gap between placing the order with a broker, even online and actual purchase which may change the price of a stock marginally. Some more time is lost when the broker takes his time to decide the best possible deal for his client, which might change the price even further.