Equity Market

What is Equity Market?

Equity market, also known as stock market, is a platform where shares are issued and exchanged between companies and investors with an objective of providing finance to the organization, and sharing the ownership of the company.

Companies with financial requirements reach here to share ownership (security) with investors. Investors once subscribed to the securities for the first time (in case of Initial Public OfferInitial Public OfferInitial Public Offering (IPO) is when the shares of the private companies are listed for the first time in the stock exchange for public trading and investment. This allows a private company to raise the capital for different purposes.read more), can either hold or sell the securities in the stock market. So, in short, it is a trading place where the transfer of securities takes place. For example, Alibaba Group, a company based out of China, has listed its shares at NYSE on 18th Sep’2014 for an amount of $25 billion.

Equity Market

Types of Equity Market

The equity market is of two types – Primary Market and Secondary Market.

Types of Equity Market

#1 – Primary Market

It is also known as the issue market where the companies get their securities listed and approach the public to subscribe to it for the first time. Issue of securities in this market could be of four types:

#2 – Secondary Market

It is a place where securities change hands amongst investors — the securities of entities such as public Undertakings, semi-government bodies, govt. Organizations, Joint Stock Companies, etc. are listed and traded. It is more popular and widely used by investors daily.

Example of Equity Market

Equity markets are across all the countries, and for example, the New York Stock Exchange(NYSE) is an equity market situated in New York, The USA. It is the largest equity-focused exchange in the world based on the total capitalization of stocks that are listed here. It was held privately till 2005 and went public after acquiring Archipelago (a trading exchange working on electronic mode), and Euronext ( Europe’s largest exchange). Currently, the ownership of the NYSE is held by an American public company, Intercontinental Exchange.

Characteristics

There are more than ten stock marketsStock MarketsStock Market works on the basic principle of matching supply and demand through an auction process where investors are willing to pay a certain amount for an asset, and they are willing to sell off something they have at a specific price.read more across the U.S., but the most popular ones are the New York Stock Exchange, and the NASDAQ stock market, both based out of New York City. Though there is a presence of multiple stock markets in the U.S., the following tenets of a stock market remain the same.

Advantages

  • Companies with financial needs and good business prospects could come to stock markets and gets their securities listed (provided that all the requirements are fulfilled). It helps the company to avert debts and consistent payments by parting off with the ownership of the company. Generally, entities avail this route in case of expansion, debt reduction, dilution of shareholding, etc.
  • For investors, the stock market opens up a window to invest in a growing company by sharing ownership. The equity market though risky than the debt market, is considered a highly rewarding option.
  • They play an active role in the economy of a nation as well. It indicates the pulse of the country and employs funds of the majority of social security funds. Due to its widespread impact, it is heavily guarded and overseen by federal agencies such as SEC.

Disadvantages

Irrespective of numerous benefits entailed by equity markets, it has some severe repercussions too. As it offers lucrative returns, and despite being heavily guarded by federal agencies, many uninformed people get duped in the market. Additionally, as the stock performance is an indicator of the health of the corporation, it builds pressure on the top management to beat its records, which sometimes leads to malpractices.

Conclusion

In spite of several limitations from the standpoint of investors and organizations, They offer an incredible stage to exchange funds with ownership that led to the prosperity of entities, investors, and the public at large.

Recommended Articles

This article has been a guide to what is the equity market and its meaning. Here we discuss characteristics and types of equity markets with the help of an example. We also discuss the advantages and disadvantages. You may also have a look at the following articles –

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