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
- Based on Market-cap: 3 types based on the market value of the total shareholding of the company
|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
- Based on Risk: Broadly 2 types based on the risk profile of the stocks
|Blue chip stocks
Higher the beta, the higher the risk.
- Based on Price Trends: Broadly 2 types based on economic changes effect on stock
- Based on location: 2 types based on the location of the company usually done countrywise
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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.