A stock is a type of security that represents ownership in a company/ corporation divided into equal shares that are a claim on its earnings (dividends) and assets (residual interest). An entity issues stocks as a means of fragmenting its ownership base into small units representing respective ownership stakes by the holders.
Stocks can be classified according to several criteria, mainly including:
- In terms of certain rights attached to a stock: common stock (residual interest, dividends, voting rights) and preferred stock (guaranteed interest, no voting rights, no residual interest in the issuer’s assets).
- In terms of embedded features: plain vanilla stock and exotic stock (e.g., callable stock).
- In terms of use and function: defensive stock, income stock, value stock, etc.
- In terms of trading venue: IPO stock, secondary market trading stock.
- In terms of relation to business cycle: cyclical stock, countercyclical stock, non-cyclical stock.
- In terms of issuer (size and market share): blue-chip stock, large-cap stock, small-cap stock, mid-cap stock, penny stock.
- In terms of place of issue: local or domestic stock, international stock.
- In terms of sector: energy stock, real estate stock, financial stock, utilities stock, etc.
- In terms of issuance round: authorized stock, additional stock.
- In terms of voting rights: voting stock, non-voting stock.
- In terms of market price: par value stock, no-par value stock.
