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Finance GlossaryCommon Stocks
Common Stocks
Definition of Common Stocks
A common stock is a type of share that gives the holder the right to a part of a company’s profits, voting on key policies and decisions. Common stockholders have an advantage over preferred stockholders because they can:
- Get higher returns
- A part of the assets left after a company is liquidated (in case of default)
Related Terms
Securities Lending
Securities Lending is a process through which investors can lend their shares to borrowers, usually for short selling. In return, they receive interest or fees. The lender continues to be the owner of the assets. The borrower needs to return the securities later. Securities lending helps in improving liquidity in the market. Long-term investors can also earn extra income on holdings that remain idle for a while.
Liquidity Ratio
The Liquidity Ratio is a tool in financial analysis for measuring a company’s ability to fulfil short-term debt obligations without the need to secure external financing. The key term here is liquidity.
Secondary Market
In the Secondary Market, investors can buy and sell securities that are already issued. These include stocks and bonds. The secondary market involves stock exchanges like the NSE and the BSE. Companies don’t receive money from these trades. However, the secondary market ensures liquidity and serves as an easy entry or exit point for investors.
Overbought
An overbought term refers to a security whose price has advanced sharply, and the broader market sentiment suggests that a price correction or reversal is likely to occur in the near future. It does not necessarily mean the price will go down, but that the upward momentum is unsustainable. Technical indicators such as the Relative Strength Index (RSI) or Stochastic Oscillator are widely used by traders for identifying overbought situations. An RSI above 70 is considered an overbought indicator.
Growth Stocks
Growth stocks are shares of companies that have the potential to outperform the market. These are stocks can grow faster than the market due to strong fundamental characteristics like a strong balance sheet, high Earnings Per Share, solid P/E, and more that can bolster its profits in the medium to long term.
Differential Pricing
Differential pricing is a strategy that involves setting different prices for the same product or service based on the type of customer or tming.
For example, a zoo ticket may cost Rs. 10 for domestic visitors and Rs. 100 for international visitors. Or, when buying a product gets costlier as and when the last date for the sale approaches.
That’s why differential pricing is also known as discriminatory pricing and variable pricing.
For example, a zoo ticket may cost Rs. 10 for domestic visitors and Rs. 100 for international visitors. Or, when buying a product gets costlier as and when the last date for the sale approaches.
That’s why differential pricing is also known as discriminatory pricing and variable pricing.
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