Lesson 5 – What are stocks and how do they differ from cryptocurrencies?

Stocks, also known as shares or equities, are a type of financial asset that represents a portion of ownership in a company, specifically a joint-stock company. When you buy a stock, you become a shareholder, participating in the stock’s performance and receiving a stake in the company’s profits in the form of dividends. The share price is subject to fluctuations and is influenced both by the company’s performance or profitability and by general market sentiment.

How do Stocks work / What is an IPO?

In an Initial Public Offering (IPO), securities are issued for the first time. Companies seeking capital sell their own shares to investors offering capital. The reasons for a company to offer stocks are varied, including raising capital for growth and valuing the company.

Stocks can then be traded via stock exchanges, online brokers, financial advisors, or banks, among others.

owadays, stock trading platforms, also called online brokers, are gaining more and more popularity. This is mainly due to the fact that trading platforms such as the BISON app are easily accessible, often associated with low costs, and user-friendly.

Types of stocks

There are two main types of stocks:

Preferred stocks

These stocks come with a higher claim on a company’s earnings and assets. This means that preferred shareholders will receive dividends before common stockholders. However, preferred stocks usually do not come with voting rights.

What is the difference between stocks and cryptocurrencies?

Although they are different asset classes, both stocks and cryptocurrencies are globally tradeable and are considered widely popular investment instruments. Both cryptocurrencies and stocks can be used by investors to build wealth. However, investing in stocks differs significantly from investing in cryptocurrencies.

Here’s a breakdown of their key differences:

1. Nature and ownership: Unlike stocks, investing in cryptocurrencies does not involve owning a share in a company. Crypto investors also do not receive dividends in the traditional sense and generally do not have voting rights. Instead, they may lend or use their coins or tokens to earn passive income.
2. Trading and exchange: Cryptocurrencies can be purchased on any digital currency exchange at any time, whereas stock exchange trading is generally limited to specific trading days.
3. Value determination: Stocks have an intrinsic value representing the company’s inherent book value, while cryptocurrencies have no such inherent book value. The value of cryptcurrencies is based on other factors.

Risks

Both stock and crypto trading involve risks. So when making investment decisions, it’s essential to invest only what you can afford to lose. Risks to consider include market risk, liquidity risk, and currency risk.