What would you Like to Know?
What are Equities?
Equities are pieces of a company, also known as "stocks".
When you buy stocks or shares of a company, you're basically
purchasing an ownership interest in that company. A company's
stockholders or shareholders all have equity in the company,
or own a fractional portion of the whole company. They buy
the stocks because they expect to profit when the company
profits. Companies issue two basic types of stock: common
and preferred shares.
Common Shares
Both public and private corporations can issue common shares.
Common shareholders are the owners of a company and initially
provide the equity capital to start the business.
Common share ownership in a public company offers many benefits
to investors. The following are some of its main advantages:
- Capital appreciation
- Dividends
- Voting privileges
- Marketability - shares can easily be bought
or sold
- Dividend tax credit and capital gains
tax
There are also a few drawbacks to owning common shares.
Although part owner of the business, common shareholders
are in a relatively weak position, as senior creditors, bond
holders and preferred shareholders all have prior claims
on the earnings and assets of a company. While interest payments
are guaranteed to bond holders, dividends are payable to
shareholders at the discretion of the directors of a company.
Preferred Shares
Preferred stock is a class of share capital that generally
entitles shareholders to fixed dividends ahead of the company's
common shares and to a stated dollar value per share in the
event of liquidation. Typically, the preferred shareholder
occupies a position between that of a company's creditors
and its common shareholders.
There are many different variations of preferred shares,
including convertible preferreds, retractable preferreds,
and variable-rate preferreds. Most Canadian preferred shares are
cumulative: when dividends are withheld, they accumulate
in what is known as arrears. All arrears of cumulative preferred
dividends must be paid before any common dividends can be
distributed.
As preferred shares have characteristics of both debt and
equity, they provide a link between the bond and common equity
sections of a portfolio. Because there is such a wide variety
of preferred shares available, they are suitable investments for
most investment portfolios.
One shortcoming of preferred shares is that many are non-voting.
However, after a specified number of preferred dividends
are withheld, voting rights are usually assigned to preferred
shareholders.
Frequently Used Terms When Investing in Equities
Bid: This represents the highest price a prospective buyer
is willing to pay for a security.
Offer (Ask): This represents the lowest price a prospective
seller is willing to accept for a security.
Market Order: An order to buy or sell a specified number
of shares at the best available price at the time the order
is received on the exchange floor. All orders not bearing
a specific price are usually considered "at the market" which
could mean paying the "offer" when buying or accepting the "bid" when
selling.
Limit Order: An order for which you request a specific price
at which the transaction may be executed.
Open Order: An order which you request we keep on our records
until executed or cancelled. Under RBC Direct Investing policy,
open orders are valid for up to a maximum of 30 calendar
days.
All or None Order: An order which has certain restrictions
placed upon it before it can be executed. The total number
of shares specified on the order must be executed or else
none will be bought or sold. These orders do not participate
in the regular market and are executed on a best-efforts
basis only.
Any Part Order: An any part order is the opposite of an
all or none order. It means you are willing to accept any
part including odd, broken or board lots up to the full amount
of your request. Under RBC Direct Investing policy, full commissions
and fees apply for each partial order executed, except when
filled the same business day.
Stop Buy and Stop Loss Orders: Orders to buy or sell that
are placed above or below the current market price, which
become active orders when the price of a board lot rises
or falls to the specified price. These orders may be placed
to execute at the market, at a specified limit or within
a specified price range. A stop buy order can be used to
protect against losses in a short sale, whereas a stop loss
order can be used to protect a paper profit or to limit a
possible loss when you already own the shares. Not all stock
exchanges will accept these orders. Stop buy and stop loss
orders are risky because they may not necessarily fill at
the specified price but at the best possible price available
at that time.
Day Order: An order to buy or sell securities which expires
at market close on the day it is taken. All orders are considered
day orders unless you specify otherwise.
Change Former Order (CFO): An order which changes the price
or number of shares of an outstanding order.
Cancel: An order which completely cancels a previously entered
order.
Board Lot: Share price under $0.10 - 1,000 shares
Share price $0.10 to $0.99 - 500 shares
Share price $1.00 and up - 100 shares
Life of an Order
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