shares and stocks - Types of stock3. Common stock4. Preferred s

DEFINITION: Stock is one kind of security that gives the stock holder ownership in a company. Stock holding gives the stock holder an ownership or claim on part of a companys assets and earnings. Stocks are also known as equity or shares in the UK and in India. Stocks or shares are the corner stone of nearly every investors portfolio. They have traditionally given much higher returns than most other investments in the long run. While stocks and shares lure a large number of prospective investors, not everyone, especially the new comers are familiar with the different aspects and terms of this line of investment. Some terms which are commonly used and referred to in the areas of stocks and shares, have been discussed here in an effort to familiarize the reader

TYPES OF STOCKS: Stocks are mainly of two kinds, Common stock and Preferred stock.

COMMON STOCK: A common stock holder has the right to vote at share holder meetings. He is also entitled to receive dividends that the company declares.

PREFERRED STOCK: A preferred stock holder is not normally entitled to voting rights. He also has a higher claim to a companys assets and earnings than the common stock holder. For example preferred stock holders receive dividends before common stock holders. They also have a priority on the proceeds of liquidation when a company is declared bankrupt.

STOCK HOLDER: An owner or holder of stock, also known as a share holder in the UK and in India, has an ownership or claim over the companys assets and earnings. In other words a stock holder is one of the owners of a corporation. Holding is calculated by the number of shares in a stock holders possession in relation to the number of shares outstanding. For example, if a company has one hundred outstanding shares of stock and one person holds ten shares, that person would then have a claim to ten percent of the companys assets.

BLUE CHIP STOCK: A blue chip stock is stock of a very well established and financially sound company that has time and again proved its ability to pay dividends in both good and bad times. Hence such stocks are very much trusted and are a great favorite with investors; the term blue chip has been from the game of poker, where the blue chips are the most expensive ones. Blue chip stocks are generally less risky than other stocks.

DEPOSITORY RECEIPT: Depository receipt is a negotiable instrument issued by a bank in order to represent a foreign companys publicly traded shares. Depository receipts make it simpler to buy shares of foreign companies, because the companies dont have to leave their shores in order to sell their shares in another country. American banks issue American Depository Receipts (ADR), European banks issue European Depository Receipts (EDR) and other banks issue Global Depository Receipts (GDR).

ISSUED SHARES: Are those shares or stocks which are sold by a company to the investors and the share holders own the shares after buying them from the company. The most important purpose of issuing is to generate capital for the company.

STOCK OPTION: This is a privilege sold by one party to another, by which the buyer gets the right, but not the obligation to buy or sell a shares at a mutually agreed upon price during a specified period of time or date.

STOCK BROKER: A stock broker is an individual or a firm that buys and sells stock on behalf of an individual. A stock broker claims a fee or commission for his services. Earlier only a wealthy investor could afford a broker and access the stock market. The advent of the internet has changed that scenario, giving rise to a spate of discount brokers. Discount brokers charge a very nominal commission but they do not provide personalized services. Discount stock brokers have made stock markets accessible even to small investors.

SHARE OR STOCK MARKET: The market in which shares are issued and/or traded either through stock exchanges or over the counter is known as a stock market or share market or equity market. Stock market is one of the most vital areas of a market economy. It provides companies access to capital. Investors also get some ownership in the company in proportion to the shares they purchase. The stock market can be divided into two main parts; the primary and the secondary market. The primary market is where the new issues or IPOs are initially offered. Subsequent trading is conducted in the secondary market.

SHARE CAPITAL: This is the part of a corporations equity raised through issue of shares. This is also known as equity financing.

STOCK VALUATION: There are different methods of valuation of a company and its stock. Fundamental criteria (fair value) involving discounted cash flow method is financially the most sound method. The other method is Market criteria (potential price) where the potential price range of a stock is also determined over and above its fair value.