Stock Market Investments and Equity Trading: The Basics!

At the start of a business, there is always the need for greater funding. The funds acquired from various sources finance the assets of a business, speed up its modernization and help it expand. This creates a form of liability on the business in the form of capital. The individuals who invest in the company and transform the capital to a liability by means of stock shares are known as shareholders. Thus, shareholders' equity or stockholders' equity represents the surplus interest in the assets of the company, which is eventually spread among the several shareholders. The interest accrued from the capital can be either spread out evenly among all the shareholders or a priority ranking system can be established, which splits the stocks into common or preferred stock. In pure accounting terms, any business can be considered to be a sum of the total assets and liabilities of a company. And after the liabilities have been squared off, the residual value is the profit of the company.

Equity investments, more often than not, refer to the buying and selling of stocks in the stock market. Individuals, traders and firms invest in the stocks in anticipation of dividends as the value of the stocks rises. Equity investments may also refer to the participation in the equity of unlisted, privately-owned companies. These investments are contractual in nature and eventually result in sharing of profits in accordance with predetermined ratios. Another variant of equity investments is the financing of startup companies, that is, a company that has been newly created and requires funding in order to establish its operations. Investing in these newly created companies goes under the name of Venture Capital investing and is, statistically speaking, liable to greater risk as compared to investing in established companies in the stock market.

Companies that go public, that is, list themselves in the stock market allow their stocks to be traded in a stock exchange. These stock exchanges such as the New York Stock Exchange, The Bombay Stock Exchange, London Stock Exchange, Tokyo Stock Exchange, etc. serve as physical locations where the auctions of company stocks take place. However, not all companies trade their stocks in the stock market. Equity traders trade in the stocks of several smaller companies in over-the-counter markets.

Equity trading can also be performed by brokers and agents. Equity broking, which employs the services, experience and expertise of brokers is gaining increasing relevance today.

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