Different types of stocks


A Preferential Stock is typically different from that of an ordinary stock. This is where the stockholders will receive dividends before the usual time frame of announcements of the ordinary stocks’ dividends. Preference Stock means that certain stockholders are given preferential treatment and in most cases come with a fixed dividend rate. If the company wound up, the distribution of assets of the company would first be given to the preference stockholders before the ordinary stockholders.

The Rights Issue is a type of privilege given to certain stockholders to buy stocks in a particular company which is usually below the market price. A Bonus Issue is the free issuance of stocks to a particular stockholder based on the numbers that particular stockholder currently hold. For example, if Ali owns 3,000 shares in company A, the bonus issue would be that he will be given an additional 3,000 more shares in Company A. Derivatives is where you can trade certain securities that ‘derive’ their price from their parent company’s stock prices.

Derivatives have 2 types known as Options and Warrants. Options involve 2 parties known as the writer or seller and the taker or buyer. This is where the writer (seller) writes the option and is then obligated to accept the sale while the taker (buyer) could exercise their right to buy or sell the stocks. They are not obligated in any way for the trade. Warrants on the other hand usually ‘derive’ their price from the parent company’s stock prices. They are usually issued by financial institutions like banks and are normally classified either for investment or trading purposes.

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