Difference Between Preferred & Common Stock Exchange
Preferred stock and common stock both represent shares of ownership in a company, but the rights granted to a preferred shareholder differ from a common shareholder's rights.
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Common Stock
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Stock discussion usually centers around common stock. If an investor owns common stock, he has a right to company dividends only if declared. He also receives one vote per share to elect members of the board.
Preferred Stock
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As the name implies, it is the preferred stock to own. Preferred shareholders are usually issued a fixed dividend for life. Also, in the case of bankruptcy, preferred shareholders will receive money before common shareholders. Typically, preferred shareholders do not have voting rights.
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Trading Differences
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There is no difference in how these two types of stock trade. They both trade through a brokerage with typically the same transaction costs. Because of its regular income potential, preferred stock often seems more stable than common stock.
Risks
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According to StreetAuthority.com, "Because they act similar to bonds, preferred shares are exposed to interest rate risk. When interest rates rise, preferred stock can decline in value."
Convertible Preferred
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Convertible preferred stock can be converted from preferred to common stock at a set price after a certain date. The trading price of convertible preferred shares are influenced by the conversion premium, the difference between the preferred and common stock share prices.
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