If you’re new to trading, you’ve probably heard terms like stocks, futures, and options thrown around.
But what do they actually mean?
And how are they different?
Here’s the breakdown - no jargon, no lectures - just the essentials.
Whether you’re brand new or just need things to finally make sense - this post has you.
What is a Stock?
A stock (aka “common stock”) is a tiny piece of ownership in a company.
When you buy one, you're buying a share of the company.
If the company does well, your slice becomes more valuable. If it tanks? Same story - your share loses value.
Imagine owning 1 share of a 100-share pizza. That’s your stock. If the whole pizza grows, your piece gets bigger too 🍕
How Do Stocks Work?
When a company wants to raise money, it can “go public” - meaning it sells shares (aka stock) to investors through the stock market. You buy those shares, and you become a shareholder.
You’re not running the company, but you are a part-owner. In return, you can:
- Profit if the stock price goes up
- Get paid dividends (some companies share profits)
- Vote on certain company decisions (with common stock)
Most traders deal with common stock, but there are a few types.
What Types of Stock Exist?
- Common stock – Most popular. You get voting rights and price movement.
- Preferred stock – No votes, but you get fixed dividends and first dibs if the company shuts down on the company’s remaining assets or liquidation value — like cash, inventory, or anything left after debts are paid.
- Typically held by institutions.
- Creditors and bondholders still get paid first, but preferred stockholders come next, ahead of common shareholders.
- Class A, Class B, etc. – Different classes can come with different voting rights (e.g. Google has GOOGL and GOOG).
TL;DR: Most traders and investors use common stock 😉
Types of Stock Trades
Different ways to trade based on time, risk, and capital:
- Day trading – In and out the same day. Fast-paced. High risk/reward. Often highly leveraged.
- Swing trading – Hold for a few days to weeks. Play short-term trends.
- Position trading – Hold for months. Based on big moves.
- Long-term investing – Hold for years. Think Warren Buffett-style.
- Margin trading – Borrow money to buy more stock (adds leverage/risk).
- Cash accounts – Trade only with what you have. No borrowing. No leverage.
Example
You buy 10 shares of Apple at $150 = $1,500 total. If the price rises to $170, your position is worth $1,700 - you made $200. If it drops to $130? You’re down $200.
Pretty simple 😅
Why Traders Like Stocks
- Easy to understand and get started
- Tons of liquidity and data available (on companies, ratings, trends, etc.)
- Good for short and long-term investing
- No expiration or special rules like options or futures
⚠️ Downsides
- Less built-in leverage (unless on margin)
- Can move slower compared to futures or options
- Big gains take time - or size - or really good timing 😎🔥
