Candlestick Trading Blog

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Trade Stocks – Types of Stocks to Trade

In order to trade stocks it is important to understand the different types of stock available to the investors to trade. In today's article we will discuss two types of stocks as well as the different stock sectors used to classify stocks.

There are two types of stock including preferred stock and common stock for investors who trade stocks. The majority of investors own common stock. Preferred stock represents a degree of ownership in a company and the company has the option to purchase shares from shareholders at any time for any reason. Preferred stock has fewer rights than common stocks except in regards to dividends. Companies that issue preferred stock pay consistently with dividends and preferred stock has first rights to dividends over common stock. Also, in the event of liquidation, preferred stock shareholders are paid before common stock shareholders.

Investors who trade stocks in common stocks are of the majority of stocks traders. Common shares represent ownership in a company and claim on a portion of the profits through claiming stock dividends. Investors invested in this type of stock get one vote per share to elect board members who will ultimately oversee any major decisions made by management of the company. This type of stock is mostly held by the public and is the when people refer to stocks they are typically referring to common stocks. They provide higher returns than with higher risk. For example, in the event of liquidation of the company, shareholders will not receive money until the creditors, preferred shareholders and the bond holders are paid.

Investors who trade stocks classify stocks by the type of business. Companies are grouped together by industry including eleven different sectors. These eleven different sectors fit into one of two groups including cyclical and defensive stocks. Cyclical stocks include nine sectors are include everything else other than utility companies and consumer staples, which are defensive stocks.

The list of cyclical stocks for investing money include the following:

1) Basic materials
2) Communications
3) Capital Goods
4) Energy
5) Financial
6) Transportation
7) Consumer Cyclical
8) Health Care
9) Technology

The cyclical sectors are considered cyclical because they tend to move up or down in relation to business cycles or other influences.

Defensive stocks include consumer staples and utilities as mentioned above. These stocks are used in defensive investing because they can potentially provide protection in a falling market. They balance out portfolios as a result because people will always eat food and need energy. They will however fail to climb with a rising market, so it is important to ensure portfolio diversification by investing in other types of stocks and stock sectors when you trade stocks.

The above provides basic definitions for common stocks, preferred stocks and the different stock sectors available to the investor. Continue to read about the different types of stock investing so that you ensure that you have strong portfolio.