I was originally going to use this blog post as a reflection of the semester, but I remembered that there was a separate blog post just for that, so I’m going to talk about the different types of stocks in the stock market, like I said I would in the previous post.
The term ‘Stocks’ is commonly used as if it is another word for equity. However, this is not the correct way of using the word, since equities is one type of stock out of the many. There are many different types of stocks, depending on which country’s stock market you are trading in, but this blog post will focus on the 4 basic forms of stocks in the US stock market.
The first is equity. Equity is the commonly known type of stock, and the simplest to trade. An equity is partial ownership of a firm, and each share of the company represents how much impact you have on the company’s decision making. This is the simplest form of stock trading, since you just buy any amount of the stock you want to buy, and your dividends are based on the growth of the company.
The second is Municipal Bonds. Municipal Bonds are loan securities issued by a state, county, or municipality to pay for its capital expenditures. When one buys a municipal bond in the stock market, one loans money to the issuer of the bond for a predetermined number of interest payments over a set amount of time. When the bond reaches its maturity date, the full payment of the original investment is returned to the buyer of the bond.
A corporate bond is similar to a municipal bond in that it is also a debt security, but a corporate bond is issued by corporations and sold to investors with the backing of the bond being the company’s ability to pay the loan, which comes from possible money earned from future company operations. Corporate bonds are similarly traded to municipal bonds in that buying the bond is loaning money to the issuer of the bond and that the earnings from trading comes the specified interest rates that comes from the loan.
Futures is the last of the four, and it is the most complicated. Futures are financial contracts that make sure that the buyer buys a stock or the seller sells a stock at a set time and price in the future. Some futures trades are settled in cash, but some others require physical delivery of the asset, which could be anything.
This marks the end of this semester of independent studies of finance, but my seminar is going to continue in the next semester, so hang tight.
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