When buying stocks online in the UK, you will need to be aware of two main types of stocks and shares – common stock and preferred stock. Both have distinct advantages and disadvantages, which is why it is essential to understand the difference between the two types of UK stocks before making any investment decisions.
Common Stock
As the name suggests, common stock is the most basic type of stock available on the market. It represents ownership in a UK company and entitles the holder to voting rights and dividends (if declared). One of the critical advantages of common stock is that it offers greater flexibility when it comes to selling, as there is no set maturity date. However, this also means that common stockholders may have to wait longer to receive payouts, as dividends are not guaranteed.
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Preferred Stock
Preferred stock is a more specialised form of investment, and as such, it often comes with greater risk. However, it also offers the potential for higher rewards. Preferred stockholders are given priority regarding dividend payments. They have the right to redeem their shares at a set price (known as the par value), which makes a preferred stock more attractive for investors looking for a steady income stream. However, it is worth noting that preferred stock does not come with voting rights, meaning holders have zero say in managing and running the company.
What are the advantages of common and preferred stocks?
Each type of stock has its advantages and disadvantages, so it is crucial to know the difference and similarities between common and preferred stocks before making any investment decisions.
Common Stock
- Common stock offers greater flexibility when it comes to selling, as there is no set maturity date.
- Holders of common stock are entitled to voting rights and dividends (if declared).
Preferred Stock
- Preferred stockholders have priority regarding dividend payments.
- Preferred stockholders have the right to redeem their shares at a set price (known as the par value).
What are the disadvantages of common and preferred stocks?
The are some disadvantages of common and preferred stocks;
Common Stock
- Common stockholders may have to wait longer to receive payouts, as dividends are not guaranteed.
Preferred Stock
- Preferred stock is a more specialised form of investment, and as such, it often comes with greater risk.
- Preferred stock does not come with voting rights, meaning holders have no say in how the company is run.
- Holders of preferred stock may not receive payouts if the company declares bankruptcy.
How to trade common or preferred stocks in the UK
If you’re interested in trading common or preferred stocks in the UK, there are a few things you need to know. First, you’ll need to open a UK brokerage account with a reputable firm. Once your account runs, you can begin researching which stocks you’d like to buy.
Regarding common stocks, it’s important to remember that there is no set maturity date, which means that you can hold onto your shares for as long as you’d like or sell them as soon as they rise in value. Preferred stocks, on the other hand, have a set maturity date. This date means that you’ll need to sell your shares before they reach their expiration date.
It’s also worth noting that dividends are not guaranteed for common stockholders. You may not receive any payouts if the company doesn’t declare a dividend. Preferred stockholders, on the other hand, are almost always entitled to dividends. However, it’s important to remember that these dividends are not guaranteed and may be reduced or eliminated if the company faces financial difficulties.
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Conclusion
Both common and preferred stocks have their advantages and disadvantages. Common stocks offer greater flexibility in selling, while preferred stocks often come with higher dividends. However, it’s important to remember that UK dividends are not guaranteed for common stockholders, and preferred stockholders may not receive any payouts if the company goes bankrupt. Ultimately, it’s up to you to determine which type of stock is right for your investment portfolio when you trade.
Thomas Jackson is a dynamic and talented content writer at WonderWorldSpace.com, renowned for his engaging and informative articles. Beyond his professional pursuits in writing, Jack is also known for his deep passion for fitness, which not only shapes his lifestyle but also influences his work.