Equity Share

  • Trading is the buying and selling of securities, such as stocks, bonds, currencies and commodities, as opposed to investing, which suggests a buy-and-hold strategy. Trading success depends on a trader’s ability to be profitable over time.
  • The stock market provides a venue where companies raise capital by selling shares of stock, or equity, to investors. Stocks give shareholders voting rights as well as a residual claim on corporate earnings in the form of capital gains and dividends.
  • Individual and institutional investors come together on stock exchanges to buy and sell shares in a public market. When you buy a share of stock on the stock market, you are not buying it from the company, you are buying it from an existing shareholder.
  • What happens when you sell a stock? You do not sell your shares back to the company, but instead, sell them to another investor on the exchange.

What Is an Equity Share?

  • A stock is a financial instrument that represents ownership in a company or corporation and a proportionate claim on its assets and earnings. Stocks are also called shares or equity.
  • Owning stock means that a shareholder owns a slice of the company equal to the number of shares held as a proportion of the company’s total outstanding shares.
  • An individual or entity that owns 100,000 shares of a company with one million outstanding shares would have a 10% ownership stake in it.

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Investing in Equity Share

  • Numerous studies have shown that, over long periods, stocks generate investment returns that are superior to those from every other asset class. Stock returns arise from capital gains and dividends.
  • A capital gain occurs when you sell a stock at a higher price than the price at which you purchased it. A dividend is the share of profit that a company distributes to its shareholders. Dividends are an important component of stock returns. They have contributed nearly one-third of total equity return since 1956, while capital gains have contributed two-thirds.
  • Investment often depends on an individual’s tolerance for risk. Risky investors may generate most of their returns from capital gains rather than dividends. On the other hand, investors who are conservative and require income from their portfolios may opt for stocks that have a long history of paying substantial dividends.
  • The S&P 500 has grown about 10.5% per year since it was established in the 1920s. Using this as a barometer for market growth, one can estimate that the stock market grows in value by about the same amount each year. However, there is an element of probability: in some years the stock market sees greater growth, and in some years it grows less. In addition, some stocks grow faster than others.
  • Stock markets represent the heartbeat of the market, and experts often use stock prices as a barometer of economic health. But the importance of stock markets goes beyond mere speculation. By allowing companies to sell their shares to thousands or millions of retail investors, stock markets also represent an important source of capital for public companies.