What is a Stock?
What is a Stock?
Investing in securities is one of the wisest and most practical things to do today that will reap great rewards in the future. Any amount invested serves as a form of security for urgent necessities of tomorrow. There are several investment opportunities one can take advantage of. Accordingly, there are three major categories of investments. These are cash, bonds and stocks.
One of the traditional investments is the stock. This is generally defined as any instrument representing ownership position to a particular company. Stocks are issued in the stock market by a company in order to acquire capital from the public.
There are different forms of stocks released by companies. Ordinarily, companies issues common stocks. Also called equities, every stock signifies a unit of ownership to a company’s assets and gives rise to a claim to a part of its profit. The number of stocks in relation to the total number of stocks issued by a company determines the percentage of ownership of an investor. Consequently, ownership of a number of stocks gives rise to rights and responsibilities with limited liability. The stock holder has the right to the profits of a company in proportion to his share thereto. He also has the right and responsibility to vote for any major decision in the company. On the other hand, although the share holder owns part of the company, he does not answer for any liability, such as loss or claims against it.
Another type of stock issued by companies is called the preferred stocks. Unlike the common stocks, holders of these equities do not possess voting rights. The share holder is, however, entitled to the portion of the profit corresponding to his ownership. Some companies, though, issue convertible preferred stocks. This gives an option to the stock holder to convert his equity into common stocks, with all of its rights and responsibilities.
In relation to stocks, there is another form of security traded in the stock market. This is called a stock derivative. It is defined as a financial instrument, which value is determined by the rate of underlying stocks. There are two main types of stock derivatives. These are stock futures and stock options.
Accordingly, a stock future is defined as a contract wherein the buyer has the obligation to buy the stocks on the date of maturity. Meanwhile, a stock option consists of several options. A specific example of this type of derivative stock is the “put option”. This gives the holder of the stock the right to sell the equities in the future for a definite price.
Comments
You must be logged in to post a comment.
