What is Equity in the stock market?

What is Equity in the Share market?

The stock market is simply where securities are traded. Equity, on the other hand, refers to the investment ownership of an individual or company in business. The challenge with these two separate entities is that we tend to assume that the stock market focuses on certain securities, or that Equity can only be obtainable from individual companies. The easiest way of thoroughly grasping this concept is by understanding that the stock market is also known as the share market or the Equity market – depending on what is being traded. If it is an Equity market, Equity is being traded.

Company shares are sold to individuals or companies on stock exchange platforms across the world. One slight difference is that for an individual to be regarded as owning Equity in a company, he or she might have gotten shares of stock, from the stock exchange or might have been granted warrants. In essence, Equity is traded on the stock exchange, but you can also obtain Equity without going through the stock exchange. The stock market is a collection of markets and exchanges where the issuing and trading of securities are traded. Here are the usual kinds of securities that are traded on it.

  • Equity securities

As explained, Equity securities are the shares that give ownership of a company to individuals. The person or company buying the shares of the stock exchange has a claim on the company, its assets, its profits, dividends, and so much more. Share certificates and other relevant documents are presented to the shareholder, and it is an asset all by itself. It also confers rights and powers to those holding it. Ordinary shares (common stock) and preferred shares are usually traded at set prices depending on the economic situation.

  • Derivatives

Another form of security that is traded on the stock market is derivative securities. Derivatives are traded on the derivatives market on the stock exchange, and they are usually gotten from other securities. For example, an option usually stems from an Equity security and that in itself is a form of security – whether or not it is traded publicly. Financial instruments are usually known as derivatives. Some of them include options, swaps, futures contracts, warrants, rights, and so much more. All of which are gotten from other forms of securities or assets.

 

  • Debt securities

Finally, debts are traded on the stock market as well. Debts include loans and other items that are obtained at interest. They usually do not confer rights other than their value and their individual interests which are usually fixed. Every debt security has basic terms defined, including the principal or notional amount, the interest rate, maturity of the loan, and so much more. Debt securities or debt instrument, usually include bonds as in government bonds and corporate bonds; certificate of deposit, and so much more.

Equity in the stock market, from the foregoing, refers to anything that does not qualify as a derivative security or a debt security.

Related: WHAT ARE THE DIFFERENT TYPES OF EQUITY

What are the different types of Equity
What are the different types of Equity

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