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This video generally explains what the stock market is and how it came to be.  It details that the concept of the stock market started in the 1600s, where the Dutch East India Company increased their profits by allowing individuals to invest money into the company. The video then describes how the stock market operates in the modern era.

I chose this video because it illustrates the basics of the stock market effectively. It explains in a step-by-step procedure the process of the inner workings of the stock market. The way companies enter the stock market by advertising themselves to big investors, and then the investors sponsor the company's initial public offering (IPO) is useful to the understanding of stock markets.

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How does the stock market work? - Oliver Elfenbaum

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Image #1 – Top 100 Biggest Companies Globally

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Image #1 – Top 100 Biggest Companies Globally

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This image displays the top 100 companies globally in terms of market capitalization. These companies have seen the most success within the stock market and have the highest stock prices. It is interesting to see where both the commonly seen and the more discreet companies stand.

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This video lays down the foundation of how to invest in stocks using 5 tips. These tips are:
— to be in control of your emotions
— invest in areas that you are already knowledgeable in
— before you start to invest, understand the system behind the stock market
— it is better to think about the long-term than the short-term
— and understand the cycle of the stock market.

The significance of this video is that it informs beginners on what to do and what to avoid, allowing for people to be more successful when participating in the stock market. I found that the graph on the cycle of the stock market was fascinating, because it shows what sector of the market will do well during a specific time period within the cycle.

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How To Invest In Stocks For Beginners (2021)

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A very beneficial skill to have when investing in the stock market is to understand the information given to you in a chart. This video explores the proper way to read a line, bar, and candlestick stock chart. The video shares that the charts represent the price of the investment and how it has fluctuated over time.

When searching for the right stock to invest in, the stock chart can provide you with more context and information to determine the pattern of the stock. I think that the candlestick chart is the most interesting because you can analyze the information like, the opening and closing price, efficiently.

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This video reveals the different types of stock orders. It defines that stock orders are different methods to instruct your broker on how you want your trade to be processed. It also outlines the system the orders go through and how  market orders, limit orders and stop orders can impact the approach the system uses.

When you decide to purchase or sell a stock, the order type you use can cause an undesirable outcome if you aren't careful. It is important to know when and how each stock order is to be used for you to greatly increase your efficiency. It was intriguing to learn that stop limit orders can be used to sell your stock when it reaches a specified price. This strategy can prove helpful to people who choose to sell their stock before it decreases in value further.

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Stock Order Types: Limit Orders, Market Orders, and Stop Orders

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Website #1 – How To Buy Stocks In Canada

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Website #1 – How To Buy Stocks In Canada

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This website goes over the process of how to buy stocks for Canadians. It thoroughly examines the steps it takes from choosing a brokerage to choosing an investment account to how you should analyze what stock you want to invest into. It also compares a variety of different brokerages. The website then clarifies some terminology commonly used in the stock market.

I choose this website because it breaks down the path to becoming a Canadian investor in the stock market. Something I found worthwhile is that as opposed to investing with a traditional commercial bank, there are also online banks that seem to provide a set of features comparable to traditional banks.

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Investing in stocks and holding onto your investments for the long term has been one of the best ways to grow wealth for generations.

While it used to be tedious for beginners to buy stocks, the advent of online brokerage accounts in Canada has made it a lot easier to trade stocks.

Not only can you buy and sell thousands of stocks from the comfort of your home, but you can also do so for cheap, or for free when you use a commission-free stock broker.

Purchasing individual stocks using online brokers is not the only way to invest in stocks or equities.

You can also hold stocks using Exchange-Traded Funds(ETFs) that can either be purchased using a brokerage platform or through a robo-advisor.

Looking to buy stocks in Canada? This guide covers how to invest in stocks, the best stock trading platforms, the pros and cons of buying stocks, stock portfolio taxation, and more.

If you want to buy stocks in Canada as a beginner, we recommend using Questradeor Wealthsimple Trade. Read on to learn why!

What is a Stock?

Stocks, also referred to as "shares" or "equities", are one of the main investment classes available to investors.

When you own stock in a company or purchase shares in it, it means that you now hold an ownership interest in the company (part-owner) and have a claim to some of its profits (assets) in the form of dividends. You may also be eligible to vote at shareholder meetings.

When you sell your shares (equity/stock) in the company, it may be for more or less than what you paid for it, resulting in a capital gain or loss.

Of the main investment assets available in Canada i.e. cash savings, bonds, stocks, ETFs, and GICs; stocks are considered to be the riskiest and have historically produced the highest return for investors over the long term.

How To Invest In Stocks In Canada

Getting started as an investor in Canada is the easiest it has ever been.

You don't need a tonne of money to start trading stocks, and you can open a brokerage account online. While you can buy stocks with as little as $100, we recommend setting aside a little more to save on the trading commissions that pile up when you make multiple small trades.

Also, some brokerage platforms have a minimum investment requirement, and we will note them in this guide.

Here are the key steps you should take to begin investing in stocks:

1. Open an Online Brokerage Account

Investors who purchase stocks directly through a broker are also referred to as "self-directed" or "Do-it-yourself" investors.

This approach requires you to do your own research before picking a stock. You are also responsible for allocating assets within your investment portfolio and keeping it diversified.

Online brokerage platforms in Canada vary from independent discount brokers to brokerage firms owned by big banks.

Discount brokers such as Questrade and Wealthsimple Trade can save you a lot of money in trading fees and commission.

2. Choose an Investment Account

Canadians can invest using registered or non-registered accounts. Popular registered investment accounts include:

Tax-Free Savings Account (TFSA): A TFSA offers an opportunity to invest and earn tax-free returns forever. You can use this account to save towards short- and long-term goals, including retirement.

Each year, the government gives Canadians who are 18 years or older a contribution limit. For 2021, the TFSA contribution limit is $6,000.

Registered Retirement Savings Plan (RRSP): An RRSP is used to save for retirement and defers taxes on your earnings until you make withdrawals.

You can contribute 18% of your previous year's income up to a maximum amount. For 2021, the maximum RRSP contribution limit is $27,830.

Registered Education Savings Plan (RESP): This investment account is used to save towards a child's post-secondary education. In addition to your contributions, the government provides up to $7,200 in free grant money.

Here are the best RESP investments.

You can also invest your stocks in a non-registered account that is for personal or business purposes.

3. Analyze Stocks and Invest

After deciding on what account you want to invest in, it is time to do your research before buying a stock.

Whether you are looking for growth or value, stock analysis can be broadly divided into fundamental and technical analysis.

Fundamental analysis uses available company data to determine its financial health, intrinsic value, and potential for growth.

Using the company's financial statement (balance sheet, income, and cash flow statements), some basic stock performance indicators are:

Earnings per Share (EPS)

Price to Earning (P/E) ratio

Dividend payout ratio

Return on Equity (ROE)

Debt to Equity Ratio

Price to Earnings Growth (PEG) ratio

Other factors that come into play here include a company's management, its competitive ranking in the industry, branding, intellectual property, and more.

Here's a detailed guide on how to analyze a stock.

Technical analysis involves the use of charts and historical price patterns to forecast a stock's future price. This analytical method is used by traders (day traders) to make buy and sell decisions.

Popular technical analysis indicators include:

Support and resistance levels

Moving averages

Relative strength index

Trend channels, and several others

Brokerage platform may offer access to charting tools or you can use a stock screener.

Analyzing which stock to buy can quickly get you into the weeds. There is no end to dissecting a stock/company and prognosticating what it may or may not do in the future.

Beginners should focus on fundamental analysis and make it a priority to understand what a company is about and its prospects for the future. Keep things simple.

How To Buy Stocks Online in Canada

Below, we cover online brokerage platforms that offer stock trading in Canada.

In addition to these discount brokers, you can also use a full-service brokerage firm or purchase stocks directly from companies through direct stock purchase plans (DSPPs) or dividend reinvestment plans (DRIPs).

Best Online Broker: Questrade

Questrade has been offering brokerage services to Canadians since 1999. It offers low-cost trading in stocks, ETFs, options, Forex, and other investment products.

Questrade is a superb choice for experienced and novice investors who are looking for a customizable platform, access to advanced market data, and charting capabilities.

Accounts offered: Personal non-registered, TFSA, RRSP, RESP, margin, and corporate accounts.

Minimum investment: $1,000

Trading fees: 1 cent per stock; minimum $4.95 and maximum $9.95 per trade.

Promotion: Get $50 in free tradeswhenyou fund your account with $1,000 min. and start trading.

Best for: Seasoned traders

Is it safe?: Yes, your account is protected by CIPF and private insurance.

Cons: Stock purchases are not commission-free; a minimum of $1,000 to start investing.

Learn more: Get more details in the Questrade review.

Buy Stocks Free Online: Wealthsimple Trade

Wealthsimple Trade is Canada's only commission-free stock trading platform. It is great for beginner stock traders.

Compared to the $9.95 per trade charged by big bank discount brokerages, investors do not pay trading commissions when they buy or sell thousands of stocks or ETFs on Wealthsimple.

This platform also offers fractional share trading so you can buy small portions of expensive stocks like Amazon, Tesla, and Apple.

Accounts available: Personal investment account, TFSA, and RRSP.

Minimum investment: None

Trading fees: No trading commissions ($0)

Promotion: Get a $50 cash bonuswhen you open an account and deposit and trade at least $150 in stocks.

Best for: Beginner investors

Is it safe?: Yes, your account is protected by the Canadian Investor Protection Fund (CIPF).

Cons: Currency exchange fee applies to USD trades.

Learn more: Read our Wealthsimple Trade Review.

Best Brokerage for Customer Service: Qtrade

Qtrade is an independent brokerage platform offering trades in stocks, ETFs, GICs, options, new issues (IPOs), mutual funds, and bonds.

It offers 100+ commission-free trade ETFs.

Accounts offered: RRSP, RSP, TFSA, margin, personal and corporate investment accounts.

Trading fees: $8.75 per trade and $6.95 for active investors.

Other fees: $25 quarterly fee if your account is less than $25,000.

Promotion: Get a $50 bonus when you open a new registered account (e.g. TFSA and RRSP) and setup monthly pre-authorized contributions of $200 or more - offer available until March 31, 2022).

Best for: Customer support

Is it safe?: Yes, your account is protected by the CIPF.

Cons: High trading commissions; commission-free ETF trading limited to 100+ select ETFs.

Learn more: Get more details in this Qtrade review.

Big Bank Stock Trading Platforms in Canada

Canada's biggest banks all offer a stock trading platform for self-directed investors.

Their fees are higher, however, discounts may be available if you are an active trader. You may also need to maintain a minimum account balance to avoid inactivity fees.

A. CIBC Investor's Edge

CIBC Investor's Edge is the brokerage platform offered by the Canadian Imperial Bank of Commerce (CIBC). If you are looking for a big-bank-owned stock trading platform, this broker may be for you.

You can use it to trade stocks, ETFs, options, mutual funds, GICs, and more, and its fees are very competitive.

Accounts offered: TFSA, RRSP, RESP, margin, personal and corporate non-registered accounts.

Trading fees: $6.95 commission per trade (stocks). Students pay $5.95/trade and active traders (150+ trades per quarter) pay $4.95/trade.

Other fees: A $100 annual fee if the registered account balance is $25,000 or less; or $10,000 or less for non-registered accounts.

Cons: The trading fee is competitive for a big bank but higher than our top-two picks.

Learn more: Get more details in this review.

B. TD Direct Investing

TD Direct Investing is the brokerage platform for TD Bank and one of the very first stock trading platforms to launch in Canada.

You can use it to trade stocks, ETFs, options, bonds, mutual funds, and IPOs.

Accounts offered: TFSA, RRSP, RESP and margin accounts.

Minimum investment: None

Trading fees: $9.99 per trade (stocks). Active traders with 150+ trades per quarter pay $7/trade.

Other fees: If your account balance is less than $15,000, a $25 inactivity fee is charged per quarter.

Cons: Commission rates are high at $9.99 per trade.

C. RBC Direct Investing

RBC Direct Investing is the brokerage division of the Royal Bank of Canada (RBC). You can use the platform to trade stocks, ETFs, mutual funds, options, and bonds. It also offers a demo practice account.

D. BMO Investor Line

This trading platform is operated by the Bank of Montreal (BMO). Beginner and experienced traders alike can use it to trade stocks, ETFs, mutual funds, options, GICs, and bonds.

E. Scotia iTrade

Scotia iTrade is a division of Scotia Capital Inc. and is a part of the Bank of Nova Scotia (Scotiabank). It offers trading stocks ETFs, mutual funds, options, GICs, and bonds.

Other Stock Trading Platform in Canada

Besides Wealthsimple Trade, Questrade, and Qtrade, there are other online stock brokers that are not owned by banks.

Virtual Brokers

Virtual Brokers is a division of BBS Securities Inc. It offers stocks, ETFs, options, bonds, and mutual funds on a variety of trading platforms.

How to Invest in Stocks Using a Robo-Advisor

Instead of buying individual stocks and putting in the research required to reliably pick stocks, you can opt for a professionally managed basket of stocks, aka an index ETF portfolio.

An Index ETF can hold thousands of stocks and offers diversification across industries and geographical locations. This level of diversification (risk minimization) is difficult to achieve when you buy individual stocks.

You can purchase ETFs directly using your brokerage account. With this approach, you may need to rebalance your portfolio 1-2 times a year unless you invest using all-in-one ETFs such as Vanguard's VGRO or VBAL.

Alternatively, you can purchase ETFs through a low-cost wealth manager, also referred to as a robo-advisor.

Robo-advisors simplify the investment process by doing all the legwork on your behalf. They:

Help you identify your risk tolerance, investment objectives, and how long you plan to invest

Recommend an investment portfolio that matches your needs.

Automatically rebalance your portfolio when required

Take care of dividend re-investing and provide free financial advice

Make it easy to contribute small amounts on a regular basis (i.e. Dollar-cost averaging)

In exchange for these benefits, you pay a small annual management fee (small compared to what you could pay for a comparable mutual fund).

Wealthsimple is our top choice for a robo-advisor service in Canada. You pay 0.40% to 0.50% annually for a hassle-free investing experience.

New clients get a $75 cash bonus when they open an account here(exclusive promo for our readers).

Here are some details about what Wealthsimple offers.

You can also check out this comparison of robo-advisors in Canada.

Types of Stocks Trades

You can place various types of orders when buying or selling a stock.

The three common types of orders are market orders, limit orders, and stop orders.

Market Orders: This is an order to buy or sell a stock immediately at the current best market price. Since stock prices are always changing, the market price that is executed may be different from the market price you saw when you clicked on "buy" or "sell".

Limit Orders: A limit order specifies the price at which you want to buy or sell a stock. When you set a limit price, the trade only occurs at that price or better.

For example, a buy limit order will only be executed at price $XY (limit price) or lower.

A sell limit order will only sell a stock when the price is $XY or higher.

Limit orders may not get filled if the set price conditions are not met or there are not enough shares available.

You can determine how long a limit order stays active. For example, 1 day, 7 days, or Good Till Cancelled (GTC).

Stop Orders: This order buys or sells a stock when the price breaches a stop price. Once the stop price is reached, the order becomes a market order and is filled at the next best market price.

Investors who are long (i.e. buying) can use a stop-loss order to protect their position. If the price of a stock falls to or below a specific price (stop price) an order to sell your stock at the market price is triggered.

Stop orders can also be used to cover short (selling) positions. When you specify a limit price and stop price, the trade is a Stop-limit order.

Beginner investors should also understand what the terms 'Bid' and 'Ask' refer to.

Bid refers to maximum price that buyers are willing to pay for a stock at any point in time. Ask refers to the minimum price that a seller is willing to sell a stock for.

The Bid-Ask spread is the difference between bid and ask prices.

Types of Stocks

Stocks can be categorized into two main types:

Common Shares: These are the most common types of stocks held by investors. When you buy a common share, you become a part-owner of the business. This gives you voting rights on matters relating to the company such as the election of the board of directors.

As a shareholder, you also have a claim on the company's assets and profits (dividends). However, dividends are not guaranteed, and if the company falls on hard times, bondholders, preferred shareholders, and other creditors get paid first.

Preferred Shares: Preferred shareholders own shares with a greater claim to profits/assets, and they are paid a fixed dividend amount per share. If the company goes bankrupt, preferred shareholders get paid before "common" shareholders. However, preferred shares often do not come with voting rights.

Preferred shares are also referred to as hybrid securities because they have characteristics of both equities and bonds. Types of preferred shares include perpetuals, retractables/convertible, rate resets, and floating rates.

A stock can also be categorized based on the company issuing it, while stock funds may be classified based on the types of company stocks held by the fund:

Company ownership: private or public

Type of company: blue-chip, income, growth, defensive, value, cyclical

Market capitalization: large-cap, middle-cap, and small-capitalization shares

Investment Returns on Stocks and Taxation

When investors assess the strength of a company and the attractiveness of its stock, some performance measures they use include the dividend payout ratio and dividend yield.

The dividend payout ratio refers to how much of the company's profit is paid out as dividends to shareholders, while the dividend yield measures the dividend as a percentage of the stock's current price.

Dividends may be paid out on a monthly, quarterly, semi-annual, or annual basis. A company could also decide not to pay out dividends, either because it is in financial trouble, or it wants to reinvest profits into growing the company.

A shareholder can also make money from stocks by selling them when the price goes up. When the price you sell a stock is higher than what you paid for it, you earn a capital gain. When the reverse is the case, you incur a capital loss.

If your stocks are held within a non-registered account, they are taxed as follows:

Capital Gains: 50% of capital gains are included in your income and taxed at your marginal tax rate. Capital losses can be carried back up to three years to reduce or eliminate capital gains. Capital losses can also be carried forward indefinitely.

Dividends: Eligible dividends (e.g. dividends from Canadian companies) are grossed up and taxed. To avoid double taxation, you can claim the dividend tax credit. Dividends from foreign companies are added to your income and taxed at your marginal tax rate.

If you invest in stocks within a registered account such as RRSP and RESP, you do not pay taxes on income earned until you withdraw funds from your account. For a TFSA, no taxes are due on income earned.

Benefits of Investing in Stocks

To invest in stocks, you can choose to buy individual stocks, or buy into a pool of stocks held in an equity mutual fund or ETF. Some advantages of investing in equities are:

Capital Gains: If a company does well, its value and stock price go up, resulting in capital appreciation for the investor.

Dividends: If you buy shares in a company that pays regular dividends, you get a predictable stream of income that can supplement other income from fixed-income/money-market securities.

Liquidity: Stocks are usually traded on stock exchanges that are very liquid, i.e. you can buy or dispose of them very easily without significantly affecting the price of the stock.

Easy Diversification: Although stocks are riskier than the other major asset classes, you can invest in a portfolio of equities that are diversified across industries, sectors, and countries in order to lower your risks. This diversification can be easily accomplished using equity mutual funds/ETFs.

Favourable Taxation: Only 50% of capital gains are taxed. Additionally, dividends get a preferential tax treatment compared to interest income (from bonds and GICs) that is 100% taxed at the investor's marginal tax rate.

Outperform Inflation: Long-term returns on stocks tend to be above the inflation rate. Thus, an investment in stocks gives you a chance to grow your portfolio and generate real returns.

Disadvantages of Investing in Stocks

Volatility: The stock market can be very volatile, fluctuating to news, rumour, investor sentiments, and company information. During economic downturns, stock prices can stay depressed for a prolonged period.

Risk of Total Loss: A company can go bankrupt and leave nothing for common shareholders after bondholders and preferred shareholders have been settled. Companies may also fall on hard times and be unable to pay dividends due to disappointing profits or losses.

Time Consuming: It can be time-consuming to buy individual stocks and to evaluate each one for its merits, as well as ensure your "basket" of stocks is adequately diversified. For a chance at success, you should be knowledgeable about investing basics, including financial ratios such as EPS, P/E, ROE, and understand financial statements.

Final Thoughts - Stocks and the Risk vs. Return Conundrum

When it comes to investing, the higher the risk, the greater the expected return. And this return is not guaranteed.

Stocks (equities/shares) are considered to be riskier than cash or fixed-income assets. Because of their increased riskiness, investors expect to be rewarded for taking on "extra" risk, compared to investing in less-risky assets like GICs, Treasury bills, and investment-grade bonds.

As per Morningstar, the long-term annual rate of return of the stock market as measured by the S&P/TSX Composite Index (TSX) was 9.3% from 1960 to 2018.

After you factor in an average inflation rate of approximately 3%, this level of return beats fixed-income assets and trounces savings account returns.

What this means is that if you have time on your side and a long-term approach to investing, stocks deserve a prominent place in your wealth-building strategy.

You can get started with investing in stocks today.

Frequently Asked Questions

Have questions about investing in stocks in Canada? Let us know in the comments.

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How To Buy Stocks in Canada in 2021: Beginners Guide To Investing in Stocks

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Investing in stocks and holding onto your investments for the long term has been one of the best ways to grow wealth for generations. While it used to be tedious for beginners to buy stocks, the advent of online brokerage accounts in Canada has made it a lot easier to trade stocks.

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This website describes 19 different types of stocks available in the stock market. It examines the differences between common and preferred stocks and what shareholders for each type have to gain. It defines the high risk and high reward of growth stocks, and the lower risk and reliability of value stocks. The website also states the stock market sectors and what type of business belongs to each sector.

There are many types of stocks, and knowing what each stock is and the properties that they possess can allow your individuals to figure out which types they want. The type of stock I am most interested in, value stocks because they seem to be the most stable, although they may not increase in value that much.

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Updated: Dec. 1, 2021, 3:16 p.m.

Investing in the stock market has historically been one of the most important pathways to financial success. As you dive into researching stocks, you'll often hear them discussed with reference to different categories of stocks and different classifications. Here are the major types of stocks you should know.

1. Common stock

2. Preferred stock

3. Large-cap stocks

4. Mid-cap stocks

5. Small-cap stocks

6. Domestic stock

7. International stocks

8. Growth stocks

9. Value stocks

10. IPO stocks

11. Dividend stocks

12. Non-dividend stocks

13. Income stocks

14. Cyclical stocks stocks

15. Non-cyclical stocks

16. Safe stocks

17. ESG stocks

18. Blue chip stocks

19. Penny stocks

Common stock and preferred stock

Most stock that people invest in is common stock. Common stock represents partial ownership in a company, with shareholders getting the right to receive a proportional share of the value of any remaining assets if the company gets dissolved. Common stock gives shareholders theoretically unlimited upside potential, but they also risk losing everything if the company fails without having any assets left over.

Preferred stock works differently, as it gives shareholders a preference over common shareholders to get back a certain amount of money if the company dissolves. Preferred shareholders also have the right to receive dividend payments before common shareholders do. The net result is that preferred stock as an investment often more closely resembles fixed-income bond investments than regular common stock. Often, a company will offer only common stock. This makes sense, as that is what shareholders most often seek to buy.

Read More: Common vs. Preferred Stock

Large-cap, mid-cap, and small-cap stocks

Stocks also get categorized by the total worth of all their shares, which is called market capitalization. Companies with the biggest market capitalizations are called large-cap stocks, with mid-cap and small-cap stocks representing successively smaller companies.

There's no precise line that separates these categories from each other. However, one often-used rule is that stocks with market capitalizations of $10 billion or more are treated as large-caps, with stocks having market caps between $2 billion and $10 billion qualifying as mid-caps and stocks with market caps below $2 billion getting treated as small-cap stocks.

Large-cap stocks are generally considered safer and more conservative as investments, while mid caps and small caps have greater capacity for future growth but are riskier. However, just because two companies fall into the same category here doesn't mean they have anything else in common as investments or that they'll perform in similar ways in the future.

Read More: On large-cap, mid-cap, and small-cap stocks.

Make your portfolio reflect your best vision for our future.
David Gardner, cofounder of The Motley Fool

Domestic stocks and international stocks

You can categorize stocks by where they're located. For purposes of distinguishing domestic U.S. stocks from international stocks, most investors look at the location of the company's official headquarters.

However, it's important to understand that a stock's geographical category doesn't necessarily correspond to where the company gets its sales. Philip Morris International (NYSE:PM) is a great example, as its headquarters are in the U.S., but it sells its tobacco and other products exclusively outside the country. Especially among large multinational corporations, it can be hard to tell from business operations and financial metrics whether a company is truly domestic or international.

Read More: International stocks

Growth stocks and value stocks

Another categorization method distinguishes between two popular investment methods. Growth investors tend to look for companies that are seeing their sales and profits rise quickly. Value investors look for companies whose shares are inexpensive, whether relative to their peers or to their own past stock price.

Growth stocks tend to have higher risk levels, but the potential returns can be extremely attractive. Successful growth stocks have businesses that tap into strong and rising demand among customers, especially in connection with longer-term trends throughout society that support the use of their products and services. Competition can be fierce, though, and if rivals disrupt a growth stock's business, it can fall from favor quickly. Sometimes, even just a growth slowdown is enough to send prices sharply lower, as investors fear that long-term growth potential is waning.

Value stocks, on the other hand, are seen as being more conservative investments. They're often mature, well-known companies that have already grown into industry leaders and therefore don't have as much room left to expand further. Yet with reliable business models that have stood the test of time, they can be good choices for those seeking more price stability while still getting some of the positives of exposure to stocks.

Read more: Growth stocks and value stocks

IPO stocks

IPO stocks are stocks of companies that have recently gone public through an initial public offering. IPOs often generate a lot of excitement among investors looking to get in on the ground floor of a promising business concept. But they can also be volatile, especially when there's disagreement within the investment community about their prospects for growth and profit. A stock generally retains its status as an IPO stock for at least a year and for as long as two to four years after it becomes public.

Dividend stocks and non-dividend stocks

Many stocks make dividend payments to their shareholders on a regular basis. Dividends provide valuable income for investors, and that makes dividend stocks highly sought after among certain investment circles. Technically, paying even $0.01 per share qualifies a company as a dividend stock.

However, stocks don't have to pay dividends. Non-dividend stocks can still be strong investments if their prices rise over time. Some of the biggest companies in the world don't pay dividends, although the trend in recent years has been toward more stocks making dividend payouts to their shareholders.

Read More: Dividend investing

Income stocks

Income stocks are another name for dividend stocks, as the income that most stocks pay out comes in the form of dividends. However, income stocks also refer to shares of companies that have more mature business models and have relatively fewer long-term opportunities for growth. Ideal for conservative investors who need to draw cash from their investment portfolios right now, income stocks are a favorite among those in or nearing retirement.

Read More: Income stocks

Cyclical stocks and non-cyclical stocks

National economies tend to follow cycles of expansion and contraction, with periods of prosperity and recession. Certain businesses have greater exposure to broad business cycles, and investors therefore refer to them as cyclical stocks.

Cyclical stocks include shares of companies in industries like manufacturing, travel, and luxury goods, because an economic downturn can take away customers' ability to make major purchases quickly. When economies are strong, however, a rush of demand can make these companies rebound sharply.

By contrast, non-cyclical stocks, also known as secular or defensive stocks, don't have those big swings in demand. An example would be grocery store chains, because no matter how good or bad the economy is, people still have to eat. Non-cyclical stocks tend to perform better during market downturns, while cyclical stocks often outperform during strong bull markets.

Read More: Cyclical stocks

Safe stocks

Safe stocks are stocks whose share prices make relatively small movements up and down compared with the overall stock market. Also known as low-volatility stocks, safe stocks typically operate in industries that aren't as sensitive to changing economic conditions. They often pay dividends as well, and that income can offset falling share prices during tough times.

Stock market sectors

You'll often see stocks broken down by the type of business they're in. The basic categories most often used include:

Communication Services -- telephone, internet, media, and entertainment companies

Consumer Discretionary -- retailers, automakers, and hotel and restaurant companies

Consumer Staples -- food, beverage, tobacco, and household and personal products companies

Energy -- oil and gas exploration and production companies, pipeline providers, and gas station operators

Financial -- banks, mortgage finance specialists, and insurance and brokerage companies

Healthcare -- health insurers, drug and biotech companies, and medical device makers

Industrial -- airline, aerospace and defense, construction, logistics, machinery, and railroad companies

Materials -- mining, forest products, construction materials, packaging, and chemical companies

Real Estate -- real estate investment trusts and real estate management and development companies

Technology -- hardware, software, semiconductor, communications equipment, and IT services companies

Utilities -- electric, natural gas, water, renewable energy, and multi-product utility companies

Read More: Stock market sectors

ESG investing

ESG investing refers to an investment philosophy that puts emphasis on environmental, social, and governance concerns. Rather than focusing entirely on whether a company generates profit and is growing its revenue over time, ESG principles consider other collateral impacts on the environment, company employees, customers, and shareholder rights.

Tied to ESG's governing rules is socially responsible investing, or SRI. Investors using SRI screen out stocks of companies that don't match up to their most important values. However, ESG investing has a more positive element in that rather than just excluding companies that fail key tests, it actively encourages investing in the companies that do things the best. With evidence showing that a clear commitment to ESG principles can improve investing returns, there's a lot of interest in the area.

Read more: What Is ESG Investing?

Blue chip stocks and penny stocks

Finally, there are stock categories that make judgments based on perceived quality. Blue chip stocks tend to be the cream of the crop in the business world, featuring companies that lead their respective industries and have gained strong reputations. They typically don't provide the absolute highest returns, but their stability makes them favorites among investors with lower tolerance for risk.

By contrast, penny stocks are low-quality companies whose stock prices are extremely inexpensive, typically less than $1 per share. With dangerously speculative business models, penny stocks are prone to schemes that can drain your entire investment. It's important to know about the dangers of penny stocks.

Read More: Blue Chip stocks

You've probably heard that portfolio diversification is important for developing strong, stable investments. Keep all of these stock classifications in mind as you plan for diversity -- investing across companies of different market capitalizations, geographies, and investing styles contributes to a well-balanced portfolio.

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Types of Stocks: Understanding the Different Categories

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Updated: Dec. 1, 2021, 3:16 p.m. Investing in the stock market has historically been one of the most important pathways to financial success. As you dive into researching stocks, you'll often hear them discussed with reference to different categories of stocks and different classifications. Here are the major types of stocks you should know.

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This article goes over what you should be looking for when researching and analyzing what stock you want to invest in. The article's first tip is to gather your stock research material by checking the company's financial information like their 10-K Form and 10-Q Form. It advises you to narrow your focus when looking at the forms to specific information like the companies revenue or net income. The article continues with researching the company's qualitative information like their business strategies and examining their viability. The final tip is to put your research into context by determining if the company's stock fits into your portfolio.

I choose this website because research, as boring and tiresome it may seem, is a very critical component regarding investing in stock markets. The tip on narrowing your focus is the most interesting to me because it is overwhelming to look at a company's forms and see a bunch of numbers, narrowing your focus makes it easier to navigate through the information.

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Researching a stock is a lot like shopping for a car. You can base a decision solely on technical specs, but it's also important to consider how the ride feels on the road, the manufacturer's reputation and whether the color of the interior will camouflage dog hair.

Investors have a name for that type of stock research: fundamental analysis.

What that means: Looking at a range of factors - such as the company's financials, leadership team and competition - to evaluate a stock and decide whether it deserves a parking spot in your portfolio.

Stock research: 4 key steps to evaluate any stock

One note before we dive in: Stocks are considered long-term investments because they carry quite a bit of risk; you need time to weather any ups and downs and benefit from long-term gains. That means investing in stocks is best for money you won't need in at least the next five years. (Elsewhere we outline better options for short-term savings .)

1. Gather your stock research materials

Start by reviewing the company's financials. This is called quantitative research, and it begins with pulling together a few documents that companies are required to file with the U.S. Securities and Exchange Commission:

An annual report that includes key financial statements that have been independently audited. Here you can review a company's balance sheet, its sources of income and how it handles its cash, and its revenues and expenses.

A quarterly update on operations and financial results.

Short on time? You'll find highlights from the above filings and important financial ratios on your brokerage firm 's website or on major financial news websites. (If you don't have a brokerage account, here's how to open one .) This information will help you compare a company's performance against other candidates for your investment dollars.

These financial reports contain a ton of numbers and it's easy to get bogged down. Zero in on the following line items to become familiar with the measurable inner workings of a company:

Earnings is far from a perfect financial measurement because it doesn't tell you how - or how efficiently - the company uses its capital. Some companies take those earnings and reinvest them in the business. Others pay them out to shareholders in the form of dividends.

Price-earnings ratio (P/E): Dividing a company's current stock price by its earnings per share - usually over the last 12 months - gives you a company's trailing . Dividing the stock price by forecasted earnings from Wall Street analysts gives you the forward P/E. This measure of a stock's value tells you how much investors are willing to pay to receive $1 of the company's current earnings.

Keep in mind that the P/E ratio is derived from the potentially flawed earnings per share calculation, and analyst estimates are notoriously focused on the short term. Therefore it's not a reliable stand-alone metric.

Here again, beware of the gotchas. A company can artificially boost return on equity by buying back shares to reduce the shareholder equity denominator. Similarly, taking on more debt - say, loans to increase inventory or finance property - increases the amount in assets used to calculate return on assets.

3. Turn to qualitative research

If quantitative research reveals the black-and-white financials of a company's story, qualitative research provides the technicolor details that give you a truer picture of its operations and prospects.

Warren Buffett famously said: "Buy into a company because you want to own it, not because you want the stock to go up." That's because when you buy stocks, you purchase a personal stake in a business.

" If quantitative research reveals the black-and-white financials of a company's story, qualitative research provides the technicolor details. "

Here are some questions to help you screen your potential business partners:

4. Put your research into context

As you can see, there are endless metrics and ratios investors can use to assess a company's general financial health and calculate the intrinsic value of its stock. But looking solely at a company's revenue or income from a single year or the management team's most recent decisions paints an incomplete picture.

Before you buy any stock, you want to build a well-informed narrative about the company and what factors make it worthy of a long-term partnership. And to do that, context is key.

For long-term context, pull back the lens of your research to look at historical data. This will give you insight into the company's resilience during tough times, reactions to challenges, and ability to improve its performance and deliver shareholder value over time.

Then look at how the company fits into the big picture by comparing the numbers and key ratios above to industry averages and other companies in the same or similar business. The easiest way to make these comparisons is by using the research tools provided on your broker's website, such as a stock screener. (Learn how to use a stock screener .) There are also several free stock screeners available online.

Want to learn more? Of the online brokers that NerdWallet reviews, the following earned five stars for the research they offer.

*These brokers are NerdWallet advertising partners.

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How to Research Stocks: 4 Steps for Beginners - NerdWallet

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Researching a stock is a lot like shopping for a car. You can base a decision solely on technical specs, but it's also important to consider how the ride feels on the road, the manufacturer's reputation and whether the color of the interior will camouflage dog hair.

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This wall will teach you many aspects about the stock market through videos, websites, and images. The stock market can be very difficult to comprehend with various phrases and terminology only used within this sector of economics. The stock market is where individuals go to purchase an equity instrument called “stocks”, and when sold, you receive a return called a “dividend”. The stock market allows people the chance to increase their assets and gain wealth.

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Image #2 – Global Stock Exchange's Market Capitalization

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Image #2 – Global Stock Exchange's Market Capitalization

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These are the stock exchanges with the most market capitalization. NYSE completely dominates the market with 25 trillion dollars, with only NASDAQ being a moderately close second with approximately 19 trillion. The TSX, which is owned by the TMX Group places 10th, nowhere near the amount NYSE has.

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1. What did you learn about your topic that surprised you the most?

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1. What did you learn about your topic that surprised you the most?

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The fact that the concept of the stock market predates to the 1600s where the Dutch East India Company expanded by having people give them money and then sharing the profit with the people who invested in the company.

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2. Provide a real-life example of how this topic is relevant or interesting for you.

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2. Provide a real-life example of how this topic is relevant or interesting for you.

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I am a beginner when it comes to the stock market. I was bound to research this topic in the future, so I took the opportunity to learn now. The stock market was something I always knew I wanted to understand and get into. With the information I acquired from this, I can now confidently say I'm ready to start investing.

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3. If you could pass on your knowledge to a family member or friend, what do you think is the most important thing to pass on?

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3. If you could pass on your knowledge to a family member or friend, what do you think is the most important thing to pass on?

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The most important thing to pass on would be to start investing as soon as possible. There is a market out there that can be used to improve your financial situation. It is never too late to start. Another thing would be to not let your emotions control your decisions when investing. Always research and be confident in the stocks you invest into.

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Website #4 – Getting to Know the Stock Exchanges

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Website #4 – Getting to Know the Stock Exchanges

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This website explains what a stock exchange is and how it interacts with the stock market. It lists off different types of stock exchanges like Auction Exchanges, New York Stock Exchange, Electronic Exchanges, etc.

This website is important as people need to understand what it is they are putting their money into and how stock exchanges work.

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What Are Stock Exchanges?

A stock exchange does not own shares. Instead, it acts as a market where stock buyers connect with stock sellers. Stocks can be traded on several exchanges such as the New York Stock Exchange (NYSE) or the Nasdaq.

Although most stocks are traded through a broker, it is important to understand the relationship between exchanges and the companies that trade. Also, there are various requirements for different exchanges designed to protect investors.

How Stock Exchanges Work

A stock exchange is where different financial instruments are traded, including equities, commodities, and bonds. Exchanges bring corporations and governments, together with investors. Exchanges help provide liquidity in the market, meaning there are enough buyers and sellers so that trades can be processed efficiently without delays.

Exchanges also ensure that trading occurs in an orderly and fair manner so important financial information can be transmitted to investors and financial professionals.

Stocks first become available on an exchange after a company conducts its initial public offering (IPO). A company sells shares to an initial set of public shareholders in an IPO known as the primary market. After the IPO floats shares into the hands of public shareholders, these shares can be sold and purchased on an exchange or the secondary market.

The exchange tracks the flow of orders for each stock, and it's the flow of supply and demand that establishes a stock's price. Depending on the type of brokerage account, you may be able to view this flow of price action. For example, if a stock's bid price is $40, this means an investor is telling the exchange that they are willing to buy the stock for $40. At the same time, you may see an asking price of $41, meaning somebody else is willing to sell the stock for $41. The difference between the two is the bid-ask spread.

Auction Exchanges

Auction exchanges-or the auction market-is a place where buyers and sellers put in competitive bids and offers simultaneously. In an auction exchange, the current stock price is the highest price a buyer is willing to spend on a security, while the lowest price is what the seller will accept. Trades are then matched, and when paired together, the order is executed.

The NYSE Closing Auction is the last event of the trading day when the closing price for each stock is determined by bringing all buyers and sellers together to establish a price for all those involved.

New York Stock Exchange (NYSE)

The New York Stock Exchange is the world's largest equities exchange.﻿﻿ The parent company of the New York Stock Exchange is Intercontinental Exchange (ICE) as a result of the merger with the European exchange Euronext in 2007.

Although some of its functions have been transferred to electronic trading platforms, it remains one of the world's leading auction markets, meaning specialists (called "Designated Market Makers") are physically present on its trading floors.﻿﻿ Each specialist specializes in a particular stock, buying and selling the stock in the auction.﻿﻿

These professionals are under competitive threat by electronic-only exchanges that claim to be more efficient-that is, they execute faster trades and exhibit smaller bid-ask spreads-by eliminating human intermediaries.

Companies listed on the NYSE have great credibility because they have to meet initial listing requirements and comply with annual maintenance requirements. To keep trading on the exchange, companies must keep their price above $4 per share.﻿﻿

Investors who trade on the NYSE benefit from a set of minimum protections. Among several of the requirements that the NYSE has enacted, the following two are especially significant:

Equity incentive plans must receive shareholder approval.﻿﻿

A majority of the board of directors' members must be independent, the compensation committee must be entirely composed of independent directors, and the audit committee must include at least one person who possesses "accounting or related financial management expertise."﻿﻿

Electronic Exchanges

Many exchanges now allow trading electronically. There are no traders and no physical trading activity. Instead, trading takes place on an electronic platform and doesn't require a centralized location where buyers and sellers can meet.

These exchanges are considered more efficient and much faster than traditional exchanges and carry out billions of dollars in trades each day. The Nasdaq is one of the world's leading electronic exchanges.

The exchange has listing and governance requirements similar to the NYSE. For example, a stock must maintain a $4 minimum price. If a company does not maintain these requirements, it can be delisted to an over-the-counter (OTC) market. For example, on the New York Stock Exchange (NYSE), if a security's price closed below $1.00 for 30 consecutive trading days, that exchange would initiate the delisting process.

Electronic Communication Networks (ECNs)

Examples of ECNs include Nasdaq's Interbank Network Electronic Transfer (INET), Arca Options, which is overseen by the NYSE, and E*Trade's Instinet.﻿﻿

Over-the-Counter (OTC)

The term over-the-counter (OTC) refers to markets other than the organized exchanges described above. OTC markets generally list small companies, many of which have fallen off to the OTC market because they were delisted. Two of the major OTC markets include:

Over-the-Counter Bulletin Board (OTCBB)

The first is the Over-the-Counter Bulletin Board (OTCBB)-an electronic community of market makers. Companies that fall off the Nasdaq often end up here. On the OTCBB, there are no quantitative minimums or no minimum annual sales or assets required to list.﻿﻿

Pink Sheets

Some individual investors are wary of OTC stocks because of the extra risks involved. On the other hand, some strong companies trade on the OTC. In fact, several larger companies have deliberately switched to OTC markets to avoid the administrative burden and costly fees that accompany regulatory oversight laws such as the Sarbanes-Oxley Act.

You should also be careful when investing in the OTC if you do not have experience with penny stocks, as these primarily trade over-the-counter.

Other Exchanges

There are many other exchanges located throughout the world, including exchanges that trade stocks and bonds as well as those that exchange digital currencies.

The Shanghai Stock Exchange (SSE) is the largest in mainland China. Many investments are traded on the exchange, including stocks, bonds, and mutual funds. The Shenzhen Stock Exchange (SZSE) is the second-largest stock exchange operating independently in China.

Euronext is Europe's largest stock exchange, and although it has undergone multiple mergers, it was initially formed by the mergers of the Amsterdam, Paris, and Brussels stock exchanges. The London Stock Exchange (LSE) is located in the United Kingdom and is the second-largest exchange in Europe.

The most popular index within the LSE is the Financial Times Stock Exchange (FTSE) 100 Share Index. The "Footsie" contains the top 100 well-established publicly traded companies or blue-chip stocks.

Digital Exchanges

Coinbase is the leading cryptocurrency exchange in the United States. Coinbase has an advanced trading platform that facilitates cryptocurrency trades for retail investors and custodial accounts for institutions. Although Bitcoin is the most popular cryptocurrency, others are traded via Coinbase, such as Ethereum and Litecoin. Coinbase is licensed as a cryptocurrency exchange in 42 U.S. states.

Binance is the leading global exchange for cryptocurrencies with an average trading volume of 2 billion per day. However, Binance doesn't currently allow for deposits in U.S. dollars but allows for a few cryptocurrencies to be transacted via a credit or debit card. The exchange allows other currency deposits, including euros.

Kraken is a San Francisco-based cryptocurrency exchange where investors can buy or sell cryptocurrencies using various fiat currencies, including U.S. dollars, euros, Canadian dollars, and the Japanese yen. More than a dozen virtual currencies can be traded via the Kraken exchange, including Bitcoin, Ethereum, EOS, and Monero. As in the case of most crypto exchanges, investors need to establish and fund their digital wallet, which links to the trading account.

Stock Exchanges FAQs

What Are the 3 Major Stock Exchanges in the U.S.?

The New York Stock Exchange (NYSE) is the largest stock exchange in the U.S. and the world by market capitalization. The NASDAQ is the second-largest stock exchange in the U.S. while the American Stock Exchange, which is now known as NYSE Amex Equities after the acquisition by NYSE Euronext in 2008, is the third-largest in the U.S.

What Is a Simple Definition of Stock Exchange?

A stock exchange is a market that brings together buyers and sellers to facilitate investments in stocks.

What Is the Difference Between Stock Exchange and Stock Market?

A stock exchange is a marketplace or the infrastructure that facilitates equity trading. On the other hand, a stock market is an umbrella term representing all of the stocks that trade in a particular region or country. A stock market is often represented as an index or grouping of various stocks such as the S&P 500.

What Is the Purpose of a Stock Exchange?

A stock exchange brings companies and investors together. A stock exchange helps companies raise capital or money by issuing equity shares to be sold to investors. The companies invest those funds back into their business, and investors, ideally, earn a profit from their investment in those companies.

The Bottom Line

Every stock must list on an exchange where buyers and sellers meet. The two big U.S. exchanges are the NYSE and the Nasdaq. Companies listed on either of these exchanges must meet various minimum requirements and baseline rules concerning the "independence" of their boards.

But these are by no means the only legitimate exchanges. Electronic communication networks are relatively new, but they are sure to grab a bigger slice of the transaction pie in the future. Finally, the OTC market is a fine place for experienced investors with an itch to speculate and the know-how to conduct a little extra due diligence.

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A stock exchange does not own shares. Instead, it acts as a market where stock buyers connect with stock sellers. Stocks can be traded on several exchanges such as the New York Stock Exchange (NYSE) or the Nasdaq. Although most stocks are traded through a broker, it is important to understand the relationship between exchanges and the companies that trade.