More and more Thai people are starting to show interest in preferred stocks now that interest rates have stopped rising. That makes sense, because they offer fixed returns and are safer than common stocks. But before you put money in, you need to understand clearly how these two assets differ.

Common stock is what most people know. When you buy common stock, you become an owner of the company (at least part of it). The good part is that you have the right to vote at shareholder meetings, and if the company can generate a lot of profit, the stock price can jump by 10 times, 100 times, or even more. But the trade-off is risk. If the company goes bust, you’ll be the last to receive money—so the risk of losses is very high.

Preferred stock is a different story. It is a hybrid between a bond and a stock. Legally, you are an owner, but in practice, you act like a creditor who lends money in exchange for fixed dividends. The advantage is that you always receive dividends before common shareholders, and if the company goes bust, you get your money back first as well.

Dividend payments are extremely important here. Preferred stocks often have cumulative dividends. If the company skips paying in a given year, that amount is carried over and must be paid in full later. This is better than common stocks, where dividends may be paid out in a non-stable way. For preferred stocks that are convertible, you can convert them into common stock—if you see the “parent” stock running strongly, you can switch immediately.

But it’s not all smooth sailing. Preferred stocks have risks you need to watch out for. The first issue is liquidity. For example, KTB-P sometimes has days where trading is literally zero. If you put a large sum in and then need to sell urgently, you might not be able to “sell off,” or you may have to accept selling at a discount.

The second issue is interest rate risk. The price of preferred stocks moves inversely with interest rates. When interest rates rise, their prices fall because investors sell them to buy bonds that offer better interest. There’s also something called call risk: the company has the right to buy back the stock. This usually happens when market interest rates fall. The company wants to borrow new money at cheaper rates, which makes you miss out on better returns.

The SCB case is a good example: it carried out a Tender Offer and switched to SCBx. Holders of SCB-P had the chance to convert, but anyone who refused to convert—or missed the news—ended up with stocks that were delisted from the market, turning them into over-the-counter stocks that are difficult to trade.

RABBIT-P is complex too. It has conversion conditions, and the voting rights may decrease according to the conditions. This is a type of preferred stock that must be studied in depth only.

So which one should you choose? It depends on your goals. If you want long-term growth, believe in the business, and can tolerate volatility, common stock is the option. If you’re retired and want normal, steady cash flow and don’t want to keep watching the market, preferred stocks might be more suitable—but you must choose ones with good liquidity and strong fundamentals.

Most importantly, study in depth. Don’t just put money in because you see high dividends. Hidden risks may be lurking that you don’t think about. Understand the capital structure, review the bylaws, check liquidity, and then make a careful decision.