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What are Equities and How to Trade Them!
Equities are yet another cool asset traded in the fascinating world of the financial markets. In very simple words, equities are basically stocks, also known as company shares. So, when you invest in equities, it’s like you own part of your favourite company!
But how do you invest in equities? Well, it's simple! Through a broker! For example, if you bought 1000 shares of company XYZ at $10 each, and sometime later you sell it at $15. Here, you basically bought low, and sold higher, right? Well, then congratulations because you just made a $5000 profit!
Interestingly, these shares are offered by the companies themselves, in order to raise capital which is used for projects, operations, research and development, growth activities, etc.
Therefore, if a company grows and becomes more profitable, its stock price increases together with the investment of its shareholders. Sounds like a win-win situation, no?
Eh, it depends. In the unfortunate case that the stock price decreases, this means that the value of the stock will be less than the price bought initially. Let’s not forget that the markets have both their ups and downs!
Moving on, there are two categories of equities known as common and preferred. Common stocks are basically ordinary shares, meaning a “part” of the actual company.
Therefore, these common shareholders have certain rights, like receiving dividends, stock splits and voting rights. Of course, the shareholders’ “power” also depends on the percentage of the shares owned!
The investors owning preferred stocks now, although they might not participate in the company’s governance and corporate policies, have priority in receiving dividends. As a result, during liquidation, the first to get paid are the lenders, then the preferred stock owners and lastly the common stock owners.
Let’s be honest, stocks are a fancy asset to have that also diversify your investment portfolio. This is mainly because of the variety in companies, sectors, exchanges, etc. Of course, it’s also worth noting that stocks can be very vulnerable to volatility which may result in losses.
Some of the largest stock exchanges in the world in terms of market capitalization are:
- New York Stock Exchange
- NASDAQ
- Tokyo Stock Exchange
- Shanghai Stock Exchange
- Hong Kong Stock Exchange
- London Stock Exchange
So practice and learn as much as you can before investing real money!
