What are the Different Types of Stocks?

Like every other market, stock market is a place where stocks are traded. For a long time now, stock market has been bringing businesses, investors, traders and other entities together. As an investor, among other things, you should know about the categorization of stocks to determine which stock type suits your investment goals. Here we are to let you know the classification of stocks on different parameters.

We know that stock is a type of security that represents the ownership of a fraction of a company. Stocks are classified into different categories based on the various parameters associated with the company and their performance in the stock market.

Types of stocks

Stocks are classified into different types on various parameters like ownership, market capitalization, risk, sectors, location among others. Below is a representation of types of stocks based on the respective parameters.

Let us look into each type of stock in detail

  • Based on Ownership: 3 types based on the rights given to the stockholders
Common Stocks Preferred Stocks Hybrid Stocks
  • Dividend paid
  • Voting Rights
  • Last in line during liquidation
  • Promised Dividend
  • No Voting Rights
  • Priority in liquidation
  • Preferred stocks that come with an option to be converted into a fixed number of common stocks at a specified time
  • Based on Market-cap: 3 types based on the market value of the total shareholding of the company
Large-cap Mid-cap Small-cap
Large companies with market-cap of ₹20,000 crore or more are large-cap stocks. Companies that have a market capitalization in the range of ₹5000 crore to ₹ 20000 crore are mid-cap stocks. Companies that have a market capitalization in the range of up to ₹ 5000 crore are small-cap stocks.
  • Based on Dividend Payment: 2 types based on the dividend paid to shareholders
Income stocks Growth Stocks
  • Stocks of the companies that distribute regular dividends
  • Stable returns, less risky
  • Also, known as ‘dividend-yield’ stocks
  • Stocks of those companies that prefer to re-invest their earnings in the company operations to promote growth
  • Risky compared to income stocks
  • Investors earn through capital appreciation ( rise in stock price)
  • Based on Risk: Broadly 2 types based on the risk profile of the stocks
Blue chip stocks Beta stocks
  • Stocks of very large and well-established companies that have performed well, in the long run.
  • Have lower liabilities and stable earnings and pay regular dividends
  • Beta is the measure of risk calculating the volatility in its price.

Higher the beta, the higher the risk.

  • Stocks with higher beta value ( >1) are considered risky due to high volatility in their prices
  • Based on Price Trends: Broadly 2 types based on economic changes effect on stock
Cyclical Stocks Defensive Stocks
  • Stocks whose price tend to fluctuate with change in the economic trends
  • Stocks of Steel, automobiles, airline industry, etc.
  • Stocks that fluctuate less with change in economic conditions
  • Stocks of FMCG, Pharmaceuticals,etc.
  • Based on location: 2 types based on the location of the company usually done countrywise
Domestic stocks Foreign Stocks
  • Stocks of those companies that are located in India and are listed on Indian stock exchanges
  • Stocks of the companies whose headquarters are located outside India and are listed on the foreign exchanges

There are various other parameters like sectors, fundamentals, etc. based on which the stocks are classified. Classification of stocks on different parameters helps you determine the nature of stocks which in turn helps make a better decision. Now that you know the classification of stocks, you can choose the stocks that suit your investment needs. Also, you can refer to types of orders to know the various orders you can place to buy/sell stocks of your choice.

How to Buy Stocks?

Various criteria, such as company size, dividend payment, industry, risk, volatility, and fundamentals, can be used to categorise stocks. The following details the methods for buying equities based on these classifications:

  1. Create the necessary accounts: Before you begin stock trading, you must first create a demat and trading account. Without these accounts, participation in stock markets is not possible.
  2. Conduct Stock Analysis: Analyse stocks based on various parameters such as company size, dividend payments, industry, risk, volatility, and fundamentals. Tailor your choices to fit your investment profile.
  3. Monitor Selected Stocks: After selecting potential stocks, monitor them for a period to ensure informed buying decisions. Understanding stock price movements is crucial during this phase.
  4. Determine Order Placement Timing: Choose whether to place your order during market hours or after markets close. Consider the target share price and preferred buying conditions.
  5. Choose Order Type: Order options encompass limit orders, market orders, and stop-loss orders. Each order type serves a specific purpose, providing flexibility in executing transactions.
  6. Execute Order through Trading Account: Once order specifics are determined, execute the trade through your online trading account or by contacting your broker. Provide necessary bank account details for the seamless processing of purchase funds.
  7. Verify order Execution: Confirm that your order was properly performed and that the purchase amounts were deducted from your bank account. This completes the process of purchasing stocks and creates your ownership of the chosen assets.