When You Buy Stock Through an Online Discount Broker Are You Buying Common or Preferred Stock?
- A stock broker buys and sells securities, including common and preferred stocks, on behalf of investors. All stock brokers charge investors fees and commissions, but those costs are cheaper when an online discount broker is used. According to The Motley Fool, a discount broker will not advise investors on stock selection but can execute trades on investors' behalf. Common stocks are the most widely traded securities in the stock market, while preferred stocks have some distinct benefits.
- An online discount broker is often selected based on the best fee and commission structure of the investment firm. Comparing different fee structures outlined on the websites of the discount brokers makes this decision easier. Both common and preferred stocks trade under a symbol based on the exchange on which the security lists its shares. A common stock symbol could be made up of one to several letters, while a preferred stock symbol typically has three letters, according to USA Today.
- Preferred stocks are considered a more conservative investment than common stocks. Common stocks, however, offer investors a potential for greater profits. Fewer preferred stocks trade in the financial markets and these securities tend to exhibit less volatility versus common stocks. Investors who select common stocks risk the possibility of severe losses but gain the potential for great returns. Preferred stocks tend to deliver greater dividends, which is a share of corporate profits shared with investors on a discretionary basis, than common stocks.
- In the event that a publicly trade company files for bankruptcy, there is a pecking order in which creditors and investors are repaid. Preferred stock investors receive priority over common stock investors for any type of reimbursement for an investment. It is very possible that common stock shareholders will receive nothing, which is another reason common stocks are more risky than preferred shares. Bond investors have priority over both common stock and preferred stock shareholders.