The Indian stock market is the fastest-growing market in the world. After 2020, the number of active traders has suddenly risen. People now understand the importance of trading and can make a handsome income from trading.
You can earn a good profit from the stock market, but you need good knowledge before starting trading. If you are a beginner with no knowledge of the stock market and start trading, you might lose your hard-earned money. It is highly advised to join a good stock market course to learn trading.
Here in this article, we will see the basics of the stock market. We will see the types of stocks and classify them based on stock classes.
Types of Stocks
1. Classification Of Stocks Based On Stock Classes
Stock Classes are one of the main primary factors used to classify stocks. It is based on the shareholders voting rights. But some stocks are not based on shareholders voting rights because they do not give the power to vote at the annual meetings where decisions regarding the management of the companies occur.
Now just opposite these stocks, some stocks allow shareholders to participate for sure in deciding the matters of the company, and they do so by voting.
And some kinds of stocks offer an opportunity to shareholders to cast multiple votes on matters of the company in different aspects.
2. Classification Of Stocks Based On Market Capitalization
Stocks can also be classified based on the capitalization of the company’s market, which we can say is the total company’s shareholding. This can be calculated by multiplying the company’s stock current price by the total number of outstanding shares in the market.
Below, there are types of stock classified based on market capitalization.
1. Large Cap Stocks
Large Cap Stocks are often the stocks of companies called Blue-chip; they have established enterprises with large cash reserves at their disposal. Everyone should know that large-cap companies do not mean growing more rapidly.
In fact that they are the small stock companies that tend to outperform large-cap stocks over a very long time frame.
But there’s the fact that large-cap stocks always benefit from having investors and allowing them to reap higher dividends compared to mid and smaller-cap companies’ stocks. They ensure that the capital is preserved for a very long term.
2. Mid Cap Stocks
Mid Cap Stocks are stocks of medium-sized companies and have capitalization in the market of about INR of 250 Crore to INR of 4000 Crore.
These companies also benefit from good potential growth because these kinds of companies have a well-recognized name in the market and have good stability, which is usually accompanied by being in the market as a seasoned player.
These companies also have a steady growth track record, which is very good, and they are also very similar to blue chips stocks that are barring their size. So by this, we can tell these stocks can do and grow very well in the long term.
3. Small-Cap Stocks
Small-Cap Stocks are the stocks that have the smallest value among all in the market. Small-cap Stocks have a capitalization in the market of INR 250, and they can grow in the future at a good pace.
Investors who want to commit to long-term gains and are not very particular about any of the current dividends, and want to stand their ground during volatility in price can make significant gains in the future.
When the companies are at their initial stage, then their price is low. Then as an investor, anyone can buy stocks cheaply when they are available at low prices by these companies.
But one fact is that no one can have any surety about how this company can perform in the future as they are new to the market.
Small-cap companies are new to the markets, so they are highly volatile than other companies, and the growth of the companies has impacted the value and revenue to a huge extent.
3. Classifications Of Stock-Based On Ownership
There are three types of stocks based on ownership that investors can own, and these stocks also offer them some different rights and potential for growth.
1. Preferred and Common Stocks
Preferred stocks offer the investors a dividend of a fixed amount every year, but common stocks don’t.
Stock prices are volatile, but preferred stock prices are not as volatile as common stocks. Common Stocks are the one that gets priority benefit when distributed to a company that has surplus money.
2. Hybrid Stocks
Hybrid stocks are from the company that offers preferred shares, and they are available with an option to convert them to common shares but with the condition to change at a certain time in a point. Hybrid Stocks or convertible stocks are preferred shares that may or may not have the right of voting.
3. Stocks With Embedded Derivative Options
The Stocks available with embedded derivative options mean that it is callable, or you can also say putable, and they are also not commonly available.
A callable stock can be bought back by a company for a certain price at a certain time at a point. Similarly, the putable stock offers holders to sell it to the company at a certain time and a certain price.
So these are the types of stock. Again I want to repeat that if you are a beginner, learn trading from a good institute. The Thought Tree is one such institute. Otherwise, the market is volatile, and you can lose your money.