Understanding the Different Types of Stocks
Module 2 – Ohio Markets Stock Beginner Course
2.1 Types of Stocks You Can Trade
The global stock market offers thousands of opportunities. For example, the New York Stock Exchange (NYSE), the world’s largest stock exchange, lists more than 2,500 companies across various industries.
With so many choices, selecting the right stock can feel overwhelming—especially for beginners.
To simplify decision-making, stocks are commonly grouped based on shared characteristics such as:
Company size
Growth potential
Dividend payments
Industry or sector
Geographic region
These classifications are not official rules but practical frameworks that help traders and investors make informed decisions.
How Do Traders Choose Stocks?
Stock selection usually depends on two key factors:
1. Personal Preferences
Some traders choose stocks based on values or beliefs. For example:
Avoiding fossil fuel or tobacco companies
Preferring environmentally responsible or ethical businesses
Filtering stocks this way helps traders align investing decisions with personal principles.
2. Investment Goals
Goals differ from person to person:
Younger traders may focus on high-growth stocks and accept higher risk
Conservative or long-term traders may prefer stable companies that provide consistent income
Understanding your goals helps narrow down suitable stock categories.
2.2 Large-Cap, Mid-Cap, and Small-Cap Stocks
Stocks are often classified by market capitalisation, which measures a company’s total value.
Market Capitalisation = Share Price × Total Outstanding Shares
Market Cap Categories
| Category | Market Capitalisation |
|---|---|
| Large-cap | USD 10 billion and above |
| Mid-cap | USD 2 billion – USD 10 billion |
| Small-cap | USD 300 million – USD 2 billion |
Key Characteristics
| Category | Risk & Returns | Company Profile |
|---|---|---|
| Small-cap | Higher risk, higher growth potential | Startups, niche businesses |
| Mid-cap | Balanced risk and stability | Expanding regional or global firms |
| Large-cap | Lower risk, steady performance | Market leaders and global brands |
2.3 Blue-Chip Stocks
Blue-chip stocks represent high-quality, well-established companies with a long history of strong performance.
Examples include:
Apple
Microsoft
Amazon
Coca-Cola
Johnson & Johnson
These companies often:
Have strong financials
Perform well across market cycles
Lead their industries
Because of their reliability, blue-chip stocks are commonly used as the foundation of a portfolio, though they may require higher capital to invest.
2.4 Growth Stocks
Growth stocks belong to companies expected to expand faster than the overall market.
Typical traits include:
Strong revenue growth
Innovative products or services
High reinvestment into business expansion
Little or no dividend payouts
While growth stocks offer higher return potential, they can also be volatile. If expectations are not met, prices may decline sharply.
Growth stocks are often small- or mid-cap companies, though some large firms (such as tech giants) also fall into this category.
2.5 Overvalued vs Undervalued Stocks
A stock’s price does not always reflect its true value.
Overvalued stocks trade at prices higher than what their earnings or growth justify
Undervalued stocks trade below their perceived intrinsic value
Value-focused traders seek undervalued stocks, expecting prices to rise once the market recognises their worth. However, valuation is subjective and can change over time.
2.6 Dividend Stocks
Dividend stocks pay shareholders a portion of company profits.
Key features:
Regular income payments (quarterly or annually)
Popular among income-focused investors
Dividends can be withdrawn or reinvested
Dividend-paying companies are often mature businesses with stable cash flow. While dividends can provide passive income, payouts are not guaranteed and may be reduced during economic downturns.
2.7 International Stocks
U.S. Stocks
U.S. companies dominate global markets across technology, finance, healthcare, and consumer sectors. Many globally recognised brands originate from the United States.
U.K. Stocks
The U.K. market features strong representation in:
Banking and finance
Energy and oil
Consumer and industrial sectors
European Stocks
European companies are well-known in:
Luxury goods
Manufacturing
Automotive and aerospace industries
Australian & New Zealand Stocks
These markets offer exposure to:
Mining and natural resources
Energy
Regional consumer brands
International stocks allow traders to diversify beyond domestic markets.
2.8 Stocks vs Stock CFDs
Traditional Stock Trading
Involves owning actual company shares
Eligible for dividends and shareholder rights
Requires full capital upfront
Stock CFDs (Contracts for Difference)
No ownership of underlying shares
Trade price movements only
Ability to go long or short
Access to leverage
While CFDs allow greater flexibility and lower capital requirements, leverage can amplify both profits and losses, making risk management essential.
Module Recap
Stocks can be classified by size, growth style, income potential, and region
Market capitalisation helps assess company stability and risk
Blue-chip stocks offer reliability; growth stocks offer higher upside
Dividend stocks generate income
CFDs provide an alternative way to trade stock price movements without ownership