The stock market is filled with different types of stocks. As a result, there are different methods and strategies for investing and trading the different varieties of stocks.
Different trading strategies have many benefits to growing your trading and/or investing account. That allows you to take advantage of different stock types.
There are two common types of stocks. They're known as common stocks and preferred stocks. However, you can break down those two categories into a more in-depth view.
Common stocks get their name because they're common. The majority of stocks are considered common because they're the stocks most people talk about and trade.
The common stock usually provides a dividend and if you're a long term investor, you have voting rights. In theory, owning a share gives you a vote. However, most people don't exercise their voting rights.
These stocks can be risky. For example, if you own shares in Amazon and they went bankrupt tomorrow and had to shut down, you'd lose your investment. You wouldn't see any money until creditors, preferred shareholders and bond owners are first paid.
Then there are preferred stocks. These stocks are kind of like bonds and have no voting rights. Since you'd be a preferred shareholder, you get fixed dividends and get paid first if the company you've invested in goes belly up.
However, we can break down different types of stocks even further and go more in-depth.
ETFs are one of the different types of stocks you can trade or invest in. Exchange traded funds or ETFs track bonds, commodities, indexes and assets.
ETFs while a lot like mutual funds but are, in fact, different. They trade on the stock exchanges like common stocks. As a result, their prices move up and down as they're bought and sold.
The larger ETFs have high trading volume and lower fees than mutual funds. This means the individual trader typically find these more attractive to trade.
ETFs also have options. This opens up their trading strategies a lot and you can hedge your bets and trade on speculation. Take our options course to learn more about hedging and speculation.
Since ETFs trade through exchanges, they're more tax efficient than mutual funds. The reason for this is that shares aren't redeemed each time you buy and sell them.
Mutual funds are another one of the different types of stocks you can invest in. Mutual funds pool money together from many different investors and then invest that money into stocks and bonds.
In fact, mutual funds are run by investment companies and you have a fund manager that does all the researching and buying for you. These are usually apart of investment portfolios.
You can buy shares in a mutual fund which means you get a part of any income they bring in. These are are so popular because of diversification. You're investing in different types of stocks instead of putting all your eggs in one basket.
Mutual funds are also quite affordable. The initial investment is typically set low. As a result, any purchases aren't expensive.
Exchange traded notes or ETN are, per Investopedia, are a type of unsecured, unsubordinated debt security first issued by Barclays Bank PLC based on the performance of a market index minus applicable fees, with no period coupon payments distributed and no principal protections.
In essence, they're like ETFs because they trade on major stock exchanges. They tend to be volatile and can be used to gauge market direction. TVIX and VIX are just a couple different types of stocks ETNs.
If you participate in our trade rooms, you'll see ETNs like TVIX and VIX being used as part of technical analysis. As a result, not only can you trade them, you can use them to help determine market direction.
Blue chip stocks have different types of stocks within the sector. These are companies that are well established.
As a result, they're seen as high value and great for long term investments. Blue chip stocks are companies like Apple, Google, Intel, Netflix and Bank of America to name a few.
In times of economic downturn, these are seen has safe haven stocks because they've withstood the test of time. Blue chip stocks usually recover after a bear market so traders and investors don't worry about them.
Blue chips are also pretty popular because of the dividends they pay out. It's another way to generate income for yourself. Dividends make up for price not moving up a lot.
You want the strong consistent growth blue chip stocks provide. You can invest and swing trade them to help grow you accounts.
Penny stocks are a popular sector when people are looking for different types of stocks. Penny stock trading includes any stock that's $5 and under.
As a result, people are attracted to the cheap shares. It's important to know that penny stocks are highly manipulated. That doesn't mean you can't trade them however.
You need to practice proper risk management in penny stock trading and do a lot of research before buying. Just because someone says a penny stock is a good bet doesn't mean they're right.
Hence the need to do your own due diligence. There are a lot of penny stock success stories. The goal of those stories is to suck you into the stocks that are being pumped.
If it sounds too good to be true, it usually is.
Different types of stocks are available for every style of trader. Learning how to trade the different types of stocks can and will help you grow your trading account. You may find that not every type of stock is for you. As a result, you can focus on the types that are and grow your wealth.
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