What are ordinary stocks and what are preffered stocks?

An ordinary stock can be defined as a certificate of ownership in a company. It is basically the same as a company’s share. If you own stocks in a company, that actually makes you a part owner of the organization. You can get high annual dividend from a company if the company is successful in its business and the value of its stocks rise with time. So the better a company performs, the more the value of the ordinary stock rises, and the more money an individual investor can make.

An individual owning ordinary stock can vote in the election of directors (even by proxy) and in other matters discussed and debated at shareholder meetings. Preferred stock holders do not have voting rights but they have a first claim on earnings and assets – the dividends must be paid to preferred stock holders before they can be paid to ordinary stock holders.

Thus, a preferred stock gets preference when the company pays out dividend. These stocks are given the higher position in the company’s capital structure than ordinary stocks. Preferred stock can offer dividends while the ordinary shares cannot.

Preferred stocks offer less capital appreciation than ordinary stock. Investors prefer to buy preferred shares for income and not for capital appreciation.

Unlike the ordinary shares, preferred shares are difficult for individual investors to trade; so the institutional investors tend to trade the shares among themselves rather than on the open market.

[tags]ordinary shares,ordinary stock,preferred stock,share capital[/tags]