What Is the Equity Market?

What Is the Equity Market?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

The equity market, also known as the stock market, is a public forum for trading shares or stocks in various companies. It’s the space where businesses raise capital to finance their operations and expansions by selling these shares to investors. In return, investors – who now effectively own a part of the company – hope to gain from the company’s profits through dividends or increased share prices. Stock exchanges, like the New York Stock Exchange or the NASDAQ, are the popular platforms for these trading activities.

Related Questions

1. What is the Role of the Equity Market?

The equity market plays a crucial function in the global economy. It provides companies with access to capital, facilitates investment opportunities for investors, and helps in the wealth creation of a nation. It’s also a key element in determining a country’s economic health by reflecting its market sentiment.

2. What are Blue-Chip Stocks?

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Blue-chip stocks are shares belonging to large, nationally recognized, and financially sound companies with a history of reliable performance. These companies often have a market capitalization in the billions. Blue-chips are seen as less risky investments because they offer regular dividends and have a record of stable growth.

3. What are Dividends in the Equity Market?

Dividends refer to a portion of a company’s profits distributed to its shareholders. The dividend is the investors’ return on their investment in the company’s stocks. They’re often given as cash (cash dividends) or additional shares (stock or scrip dividends).

4. How are Stock Prices Determined in the Equity Market?

Stock prices are determined through a process of price discovery that occurs in stock exchanges. It’s primarily influenced by supply (selling) and demand (buying). Several factors affect these, including the company’s financial health, economic indicators, market sentiment, geopolitical events, among others.

5. How does the Trading of Shares Occur in the Equity Market?

Shares trading occurs through two methods – on the exchange floor or electronically. Exchange-floor trading is the traditional method where buyers and sellers meet and negotiate on the exchange floor. Electronic or online trading, more common today, involves trading through computer networks. In both methods, brokers, either human or electronic, mediate the transactions.