What Is An Equity Market? – Use This Guide To Understand

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Whenever you hear of investments, you probably think of the stock market. That’s why you need to learn as much as you can about the financial sector before making any move in the market. There are a lot of terms that are used in the financial market that may be challenging if you’re new to the field.

Terms like leverage, liabilities, and many others that may take you some time to get a full understanding of. Here, however, you have a clear definition of what an equity market is about. This is another term you will find floating around that you may have a hard time understanding.

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When it comes to an equity market, there’s a lot you need to understand as you may find yourself in need of it. There are also types of equity market among other benefits and attributes of the market. Below, you get to learn all you can about an equity market.

equity market
Image source: biltmorecap.com

What Is An Equity Market?

Before you can dive into equity markets, you need to first understand what an equity market is about. If you’ve heard of the stock market then you probably know what an equity market is, as they are the same thing. Shares are issued and traded in the equity market, either over or through the counter.

This is the kind of market that is talked about when you hear the term equity market. Economies hugely depend on this market as this is also where companies looking for capital can easily find ready investors. Investors, on the other hand, regard the market as a place where they can get a slice of ownership in a number of companies.

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Types Of Equity Markets

The market consists of two types of markets, each playing a different yet crucial role in ensuring the economy thrives. The two can easily be described as public stocks and private stocks as they are issued in public or private. In simple and clearly understood terms, however, they are primary and secondary markets.

Primary

The primary market is the one that you most certainly know about and are interested in, especially if you’re new to investing. This is where the stocks are issued for the very first time and issued to the general public. The company issues the stocks in four different categories.

  1. Public issue – Which is issued in two types to the public.
    1. The first being IPO where an unlisted company floats its shares to the public for the very first time. An IPO is also known as an initial public offer.
    2. The second part of the issuance from the public issue is through FPO where the company which has previously been listed offers shares again. An FPO is also known as a further public offer or a follow-on offer.
  1. Rights issue
  2. Private placement
  3. Preferential allotment

 There’s a lot that comes into play when it comes to the issuance of the stock in the market, but the company has a say on how they would like to issue their stocks.

Secondary

The first type of equity market is what most people know about and it is also the most important part of the capital market. However, capitalism is largely at play in the second corridor of the stock market. This is the organized part of the market where governments and companies issue and trade shares.

To further understand the market, the securities or shares are first issued in the primary market. This is so that the general public can get them and the company can get money from the investors here. After that, they are listed on the stock exchange for trading and that’s where the secondary market comes into play.

Trading In An Equity Market

Trading in the equity market is more or less the same way you trade on your other markets. Here, however, you have to bid for the stock you want. The seller offers a price for their shares and you have to meet the price if you’re going to get the stock. The first person to get close to what the seller wants or the exact amount gets the stock.

equity market

Conclusion

Understanding the full extent of the equity market takes time and you can’t learn it one go. Here is just a starting point of the things to grasp when it comes to understating the equity market. You also learn how the market operates and what goes on around the market.

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