Equity Market Meaning

26/01/2021 0 By indiafreenotes

An equity market is a platform that allows companies to raise capital via different investors. A company thus issues stock that investors or traders purchase in expectation of earning gains from future sales of said stock.

An equity market is a hub in which shares of companies are issued and traded. The market comes in the form of an exchange which facilitates the trade between buyers and sellers or over-the-counter (OTC) in which buyers and sellers find each other.

An equity market is a market in which shares of companies are issued and traded, either through exchanges or over-the-counter markets. Also known as the stock market, it is one of the most vital areas of a market economy. It gives companies access to capital to grow their business, and investors a piece of ownership in a company with the potential to realize gains in their investment based on the company’s future performance.

Equity Trading in the Stock Market

Trading in the equity market primarily entails the seller fixing a price and a buyer agreeing to pay that price to purchase the security, thus executing a sale. In a general context, the understanding of what is equity in the share market extends to all types of shares and securities traded that are also termed as stock. Equity and stock are thus used interchangeably for the purpose of trading.

Top Equity Exchanges

Some of the most well-known and largest equity markets are:

  • New York Stock Exchange (NYSE) – United States
  • Nasdaq (NASDAQ) – United States
  • Japan Exchange Group (JPX) – Japan
  • London Stock Exchange (LSE) – United Kingdom
  • Shanghai Stock Exchange (SSE) – China
  • Hong Kong Stock Exchange (HKEX) – Hong Kong
  • Euronext – European Union
  • Toronto Stock Exchange – Canada
  • Bombay Stock Exchange – India

Types of Equity Market

Equity markets comprise structured trading and investment and can be defined into two types of platforms, i.e., primary and secondary markets.

Primary market

Each company plans to offer its shares for public trading must start with Initial Public Offering or IPO. In this process, the company offers a part of its total equity to the public for raising capital initially. Once the IPO is complete, the stocks so offered are listed on the stock exchange for further trading.

The entire process of introducing the IPO by a company takes place in the primary market. In other words, this market comprises only the IPO introduction and investment.

Secondary market

Once the shares have already been listed on either of the exchanges, further trading for them is held in the secondary market. Here, the initial investors get an opportunity to exit their investments via stock sale in this live equity market. These stocks can comprise shares, along with other types of securities that can include convertible bonds, corporate bonds, etc.