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Shares are one of the most popular financial instruments and forms of investment on the financial market. They offer the chance of above-average returns, but also have a greater risk of loss than, for example, an ETF or index. However, there are not just shares, but there are many special types of shares that are fundamentally different.
Anyone who invests in stocks should have this basic knowledge, as there are fundamental differences in terms of the type of stock. Some types of stocks may fit your investment strategy and others may be less or not at all. In the next 5-10 minutes you will learn about the most important types of stocks that can make you a better investor.
If you have any more questions on the topic, we look forward to an exchange in the comments!
Shares are securities that represent a stake in a company. For example, if you own a share of Apple, you own a piece of the company.
Companies use Shares often as a financing instrument. This allows them to raise funds quickly and free of charge for further projects by issuing new shares. This process is called a capital increase.
Shares are classified according to certain characteristics. According to transferability, capital participation and voting rights. Let's first clarify what the latter is: the distinction according to voting rights.
Common stock gives the shareholder the right to vote and receive dividends. As the owner of a common stock, you get one vote at the shareholders' meeting and also have the right to participate in capital increases.
Unlike preferred shares, common shareholders are the last to receive their money in the event of insolvency.
Preferred stock is issued by companies in order to gain greater influence and say in the management of the company. Unlike common stock, preferred stock typically has no voting rights. In exchange for giving up voting rights, shareholders instead receive a higher and fixed dividend.
This dividend is paid out even if ordinary shareholders do not receive a dividend. Another advantage of this type of share comes into play in the event of insolvency. This is because preference shareholders are served before ordinary shareholders.
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A further distinction between the types of shares lies in their transferability. For this purpose, three further types of shares can be distinguished: The bearer share, the registered share and the registered share with restricted transferability.
Frequently asked: What is the difference between registered shares and bearer shares?
The bearer share is certificated to the actual holder. It does not run in the name of the shareholder, which is why no specific person is identified for this security. The special feature lies in the informal transferability. The corporation also necessarily does not know the holder of the stock. As an investor, you can remain anonymous, so to speak.
Registered shares are securities that are registered in the name of a specific shareholder. The owner of a registered share is recorded in the company's share register with his or her name, date of birth and address. This makes the transfer of ownership between shareholders more difficult.
The registered share with restricted transferability is a special form of the normal registered share. The main difference lies in the limited transferability. Unlike the normal registered share, the registered share with restricted transferability can only be transferred with the consent of the AG in accordance with the Articles of Association.
In this way, companies can protect themselves against overshooting. At the same time, the more difficult transferability is also intended to prevent a takeover by competitors and other corporate opponents.
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Equities by equity are not of interest to most private investors. Nevertheless, for the sake of completeness and because of our desire for extensive financial education, we will briefly discuss the two types of shares.
Nominal value shares represent the participation in the share capital of a company by means of a fixed monetary amount. It is important to note that the arithmetical share is calculated with the help of the nominal share capital (also called nominal capital). The nominal share capital denotes a constant part of the equity capital of a company.
It is different with no-par value shares. They are associated with a predefined share of the fixed capital stock from the articles of association. This predefined share is not marked as a monetary amount, as is usually the case, but as a unit share.
As an investor, it is your job to know where and in what you are investing your money. This includes knowing what type of stock you are buying on the stock market. Do you value voting rights and want to actively participate in the company's decisions, or are you more of an investor who wants a higher dividend but forgoes voting rights?
All types of shares have advantages and disadvantages. Decide for yourself which type of stock fits your investment strategy.
The following article will certainly be of direct help to you now: "How do I recognise preference shares, ordinary shares or registered shares and bearer shares??" This article shows you how to distinguish and recognise the individual shares in practice.
Do you have any further questions?
3 Responses
I echo Christian's question, how do you find out what type of stock it is.
Exactly the question of how to recognize the different types of shares at the broker would interest me 🙂
Thanks for your feedback Christian