Discover the Types of Stocks in the Market: A Practical Guide to Choosing Your Investment Strategy

If you are considering entering the stock market, you need to understand the structure of the available types of shares. Each category has different characteristics, risks, and benefits that will determine your returns and your level of control over the companies you invest in.

What Does a Share Really Represent?

A share is your entry into the business world. When you buy one, you automatically become a shareholder and owner of a portion of that organization’s share capital. However, not all shares listed on the markets represent the entire equity of a company.

The value of your investment fluctuates based on two key factors: the company’s performance (and if it grows in the market, your share increases), and the law of supply and demand. Your profit or loss will depend on the difference between the purchase price and the sale price, not forgetting that as a shareholder you could also receive dividends if the company distributes them.

Maintaining a shareholding position has important implications: some shareholders have more influence on business decisions than others, depending on how many shares they own.

The Three Most Traded Types of Shares on the Stock Exchange

Common Shares: The Classic with Higher Risk and Potential

These are the most popular in stock markets. Companies issue them as an alternative financing method without needing to resort to bank loans.

As the owner of a common share, you gain two main rights: voting rights at corporate assemblies (with more power if you own more shares), and the right to participate in profit distribution proportionally to your stake.

The appeal lies in their long-term potential, but the risk is considerable. Prices can be very volatile, selling is not always easy, and if the company goes bankrupt, your investment becomes zero. That’s why this type requires thorough analysis before committing your capital.

Preferred Shares: The Option for Guaranteed Income

Here, you give up voting rights but gain stability. Preferred shares guarantee fixed dividends regardless of the company’s performance.

In the event of company liquidation, preferred shareholders are reimbursed before common shareholders. This makes them an attractive option for those seeking to generate passive income without involvement in business decisions.

Liquidity is also an advantage: they are easier to sell than common shares. However, if the company prospers, the shareholders who will earn more are the common shareholders, who enjoy variable dividends and higher revaluations, while preferred shareholders receive fixed returns.

Privileged Shares: The Best of Both Worlds

They combine benefits of common and preferred shares: include voting rights and guaranteed economic benefits. Their issuance requires approval from the shareholders’ assembly.

Other Important Classifications of Share Types

Beyond these three categories, there are other classifications based on specific features:

By ownership:

• Registered shares: Issued in the name of a specific person
• Bearer shares: The owner is whoever physically holds the certificate

By market:

• Listed shares: Negotiable in stock markets with ease
• Private shares: Belong to small and medium-sized enterprises, not publicly traded

Other modalities:

• Redeemable shares: Have a defined term; after which they lose validity
• Short-selling shares: Allow for bearish investing, expecting price drops
• Treasury shares: Owned by the company itself, not sold to external investors

Comparative Table: How Different Are the Types of Shares

There is also a second layer of classifications: registered shares can be common or preferred; listed and short-selling shares operate on the stock exchange but in opposite directions; treasury shares reflect corporate confidence in their own value.

Practical Strategies: How to Invest in Each Type

Trading with Listed Shares

The most accessible method is trading listed shares through a broker. For example, Microsoft in July 2022: the month started at 254.84 USD and closed at 277.64 USD. If you placed a lot of 1, you generated a gross profit of 22.80 USD; with 2 lots, 45.60 USD.

You should subtract commissions and overnight swaps. Additionally, if the company paid dividends during your holding period, you received them automatically if you maintained the position.

Short Operations

The following month (August), Microsoft opened at 275.36 USD and closed at 260.51 USD. Short sellers earned 14.85 USD per lot. This is where trading speed surpasses traditional investing patience: markets rise slowly over long periods but fall abruptly in days or weeks.

In short, the broker “lends” you the share so you can sell it expecting a decline. When you close the position by buying the same amount, you complete the cycle without holding any paper.

Traditional Investment in Common Shares

If you seek common shares outside of trading, you will need formal documentation, contracts, and legal endorsements. Transactions are complicated and slow. However, if you invest significant amounts, you gain greater influence in business decisions and access to more substantial profit distributions.

Preferred and Privileged Shares

Preferred shares require less legal paperwork than common shares. Privileged shares need approval from the shareholders’ meeting.

Risk Analysis: Choosing the Right Type of Share

Your decision depends on several factors:

• For maximum profit potential: common shares (but with high risk)
• For stable passive income: preferred shares
• For active short-term operations: listed short-selling shares (maximum risk, quick gains)
• For business control: common shares with majority participation

Always conduct thorough analysis of the company. If you invest traditionally, prepare for short-term illiquidity. If you trade, you have the freedom to buy and sell while markets are open, but volatility requires discipline and risk management.

Stock markets tend to rise over time, but the path is irregular. Understanding the types of shares available is the first step to aligning your strategy with your financial goals.