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 OfferAn initial public offering (IPO) occurs when a private company makes its shares available to the general public for the first time. IPO is a means of raising capital for companies by allowing them to trade their shares on the stock exchange.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

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Types of Equity Market

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

Types of Equity Market

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#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 CompaniesJoint Stock CompaniesA joint stock company is one in which the company's shares or stocks are jointly held by shareholders in some proportion and in which they have share in the profits based on their shareholding. Each holder is only liable for the amount of their shareholding, and they are free to transfer their shares.read more, 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 NASDAQNASDAQThe full form of NASDAQ is the National Association of Securities Dealers Automated Quotation. The NASDAQ is a global electronic marketplace for the buying and selling of securities via an automated network that was founded in 1971 by the NASD i.e., National Association of Securities Dealers, and it is also the benchmark index of U.S. technology stocks.read more 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

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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