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Common stocks represent ownership as a security within a corporation. Holders of a common stock use control by selecting a board of director and voting on a corporate policy. Common stockholders tend to be at the bottom of the priority ladder for ownership structure, in the case of liquidation, common shareholders have the rights to a company’s assets after bondholders. Other preferred shareholders and debtholders are paid in full. This is known as ‘common’ stocks to differentiate from preferred stock.
If both types of stocks existed it would mean that the common stockholders typically cannot be paid dividends until all the other preferred stock dividends are paid in full. It is possible for a common stock to have dividends that are also paid with the preferred stock.
Stocks are considered to be an important part of an investor’s portfolio. Stocks tend have a slightly greater risk to them when compared to CDs. However, despite the risk stocks still have a rather large reward. During long term periods, stocks have a tendency to outperform other investments, but are more exposed to instability over a short term period.
In a case of bankruptcy, common stock investors only receive any remaining funds after the bondholders, creditors and preferred stockholders are paid. Common stock investors usually receive nothing after a liquidation bankruptcy.
The first common stock was established in 1602 by the Dutch East India Company and was then introduced on the Amsterdam Stock Exchange. As of 2016, there are currently over 4000 stocks traded on vital exchanges and over 15,000 traded over the counter. Slightly larger US based stocks are traded on a public exchange being the New York Stock Exchange or NASDAQ. There are also several international exchanges for foreign stocks, such as London Stock Exchange or Japan Stock Exchange. Companies that are of a smaller size and find it harder to meet an exchange’s listing requirements are considered unlisted. These unlisted stocks are traded on the Over-The-Counter Bulletin Board (OTCBB).
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