As you invest in stocks, you may know the basics, but not instinctively know what categories of stocks are there in the market. It can be beneficial to learn this to help you make better decisions and assess the level of risks you are taking. Here, we outline 5 major types of stocks available to invest in.

Common Stock

Common stock, also known as ordinary stock or ordinary share, represents partial ownership in a company. When you own common stock, you own a share in the company’s profits as well as the right to vote on board members and other corporate issues at a company’s annual meeting. Common stock, just as its name suggests, is the most common type of stock.

Preferred Stock

All public companies offer common stock, but only some issue preferred stock. Preferred stock, or preference shares, pay its holders guaranteed dividends before dividends are issued to common shareholders. Preferred stock shareholders don’t have any voting rights, but they are likely to receive compensation if the company becomes insolvent or dissolves.

Large-cap, Mid-cap, and Small-cap Stock

Cap here refers to market capitalization. Companies with the biggest market cap are called large-cap companies (market value of £5 billion or more). Mid-cap (market value between £500 million and £5 billion) and small-cap (market value between £100 million and £500 million) companies represent successively smaller companies.

Dividend Stock

When you buy dividend stock, you get paid some of the company’s profits as dividends on a regular basis. Dividend stock can provide a stream of income in addition to price appreciation. Also, it offers tax advantages, for most dividends are taxed at the same rate as long-term capital gains rather than as ordinary income. The best UK dividend stocks include Phoenix Group Holdings, British American Tobacco and National Grid.

Penny Stock

Penny stock is priced less than £1 per share in the UK. Usually they are not listed on major exchanges and are traded over the counter (OTC). Consider portfolio diversification and limit orders when investing in penny stocks, as they are highly volatile. To identify the best penny stocks in the UK, you may need to check the fundamentals.

Choose the Right Stocks for You

The different types of stocks listed above do not comprise an exhaustive list, but should give you a basic idea of how many different categories into which stocks can be classified. But when it comes to determining what stocks are right for you, the stock’s category isn’t necessarily the key consideration. It will depend more on your investing strategy, risk tolerance, and most importantly, whether you believe in the company’s growth potential.