Understanding stocks

Get a better understanding of what stocks are and how you can incorporate them into your U.S. trading or investing strategy.

What are stocks?

A stock represents a share in the ownership of a company, including a claim on the company's earnings and assets. As such, stockholders are partial owners of the company. When the value of the business rises or falls, so does the value of the stock.

Stocks are generally bought and sold electronically through stock exchanges, the two primary ones in the United States being the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASDAQ). While some companies sell stock directly to investors, most only sell stock through a brokerage such as Schwab.

Stock market Stock market Stock market

Types of stocks.

Learn about three main types of stocks, as well as some potential advantages and considerations.

  • Common stock
  • Preferred stock 
  • American Depositary Receipts (ADRs)
  • Definition
  • Common stock

    A stock represents a share in the ownership of a company, including a claim on the company's earnings and assets. As such, stockholders are partial owners of the company. 

    Fractional shares of stock also represent ownership of a company but at a size smaller than a full share of common stock. 
  • Preferred stock 

    Preferred stocks (or preferred securities) are hybrid investments that share characteristics of both stocks and bonds. They can offer higher yields than many traditional fixed income investments, but they come with different risks.
  • American Depositary Receipts (ADRs)

    Many non-U.S. companies that would otherwise be unavailable or inconvenient to trade do trade in the U.S. markets as ADRs (receipts for shares of the foreign stock issued by U.S. banks). They are denominated in U.S. dollars and pay dividends in U.S. dollars. 

  • Advantages
  • Common stock

    Potential for higher long-term return. 

    Voting rights (does not apply to owners of fractional shares). 

    Liquidity depending on trading volume. 
  • Preferred stock 

    Dividends are typically higher and fixed. 

    Share price experiences less volatility compared to common stock. 

    Preferred shareholders are more likely to recover at least part of their investment if company goes bankrupt.   
  • American Depositary Receipts (ADRs)

    Allows investors to buy and sell shares of non-U.S. companies on U.S. exchanges denominated in USD. 

    Dividends are paid out in USD. 

    Listed ADRs may be marginable and may have options. 

    Investors may be able to access financial information more easily than if you invest directly overseas. 
  • Considerations
  • Common stock

    Dividends, if available, are often lower, variable, and not guaranteed. 

    Stock price and dividend may experience more volatility than preferred stock. 

    More likely to lose investment if company goes bankrupt. 
  • Preferred stock 

    Lower long-term growth potential, if any. 

    No voting rights in most cases. 

    Generally less liquid than common stock. 
  • American Depositary Receipts (ADRs)

    Exposure to fluctuations in a foreign company's local currency could affect value of investment. 

    Political or economic events in a foreign company's home country could potentially harm your investment. 

How to trade stocks.

  • Step

    Find a stock to buy and evaluate it

    Starting with fundamental analysis and expert ratings can be a good way to search for stocks in an industry or sector you're interested in. Fundamental data can tell you how a business is growing, stabilizing, or deteriorating, while ratings reflect the outlooks of various financial firms.

  • Step

    Decide when to buy the stock

    For investors seeking short-term returns, stock charting tools can help you identify whether the stock's price is on an uptrend or a downtrend and help signal where the stock price could be headed next.

  • Step

    Place your order

    Placing an order includes entering the stock symbol, desired trade action (buy or sell), number of shares you want to buy, as well as the order type reflecting the price you're willing to pay for the stock.

Why invest in U.S. stocks with Schwab?

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  • Intuitive platforms

    Trade stocks using our web, mobile, or advanced platforms. See them in action.

  • Trading specialists

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  • Premium research

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Common questions

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