Equity is nothing but part ownership in a company. Equity trading in the share market refers to the buying and selling of company stocks or shares. Each country has its own organised market, known as a stock exchange, where listed company shares are traded.
Have you ever considered equity trading as an investment option? It’s a popular choice for individuals and mutual funds. This article will explore the advantages, risks, mechanics, and everything else you want to know about equity trading.
An equity market serves as a platform for the trading of stocks and shares of companies. These equities can be traded either over the counter or on stock exchanges.
In India, the primary stock markets are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE holds the distinction of being India’s oldest stock exchange. Both exchanges operate under the regulatory oversight of the Securities Exchange Board of India (SEBI). Notably, the Sensex and Nifty stand as two prominent market indexes in India, offering insights into the overall performance of the Indian stock market.
To engage in equity trading, individuals require both a Demat Account and a Trading Account. Once these accounts are in place, investors can place bids for stocks at specific prices. If the bid price matches the asking price set by sellers, a trade is executed. In instances where multiple investors bid for the same stock, the highest bidder secures the trade.
The fluctuations in stock prices can be influenced by various factors. For instance, increased demand for a particular company’s stocks can drive up prices, while an abundance of sellers can lead to a decrease in stock prices.
Understanding the eligibility criteria, here are some key considerations:
Eligibility for equity trading typically extends to various entities, including:
The following points highlight the various benefits that equity investments offer to investors seeking long-term growth and income opportunities.
This table highlights the key differences between stocks and equity, including their definitions, scope, types, ownership, income potential, voting rights, liquidity, risk factors, and transferability.
| Aspect | Stock | Equity |
| Definition | Represents ownership in a specific company. | Represents ownership in any company or asset. |
| Scope | Refers to shares issued by a corporation. | Encompasses ownership interests in various assets such as stocks, real estate, or mutual funds. |
| Types | Common stock, preferred stock. | Includes various forms such as common stock, preferred stock, partnership interests, etc. |
| Ownership | Shareholders hold ownership of the company. | Equity holders possess ownership in assets or companies. |
| Income | May entitle shareholders to dividends. | Can generate income through dividends, capital gains, or distributions. |
| Voting Rights | Typically carries voting rights in corporate matters. | May or may not include voting rights, depending on the type of equity. |
| Liquidity | Generally traded on stock exchanges, providing liquidity. | Liquidity varies depending on the type of equity and asset class. |
| Risk | Subject to market volatility and company-specific risks. | Risk level depends on the type of equity and underlying asset. |
| Transferability | Stocks are easily transferable through stock exchanges. | Transferability varies based on the nature of the equity and legal restrictions. |
Starting to trade in equity involves several steps. Here’s a general guide to get you started:
Remember that trading in equity requires careful planning, discipline, and continuous learning. Start with small investments and gradually increase your exposure as you gain experience and confidence in your trading abilities.
For beginners, the best type of equity trading is typically long-term investing in fundamentally strong companies. This approach, often referred to as buy-and-hold investing, involves purchasing shares of well-established companies with solid track records, strong financials, and promising growth prospects. Long-term investing allows beginners to avoid the complexities of short-term trading strategies and focus on building a diversified portfolio of quality stocks that can potentially deliver attractive returns over time.
Traders often lose money in equity markets due to:
To reduce risk in equity trading, consider the following strategies:
“Equity trading” and “Trading on equity” are two distinct concepts in finance:
| Concept | Equity Trading | Trading on Equity |
| Definition | Buying and selling shares or stocks in publicly traded companies. | Using borrowed funds, such as debt or preferred stock, to finance investments in a company’s equity. |
| Objective | Generating capital gains or income from dividends. | Increasing the return on equity investment by leveraging borrowed funds. |
| Nature | Involves trading ownership stakes in companies through stock exchanges. | Involves using debt to magnify returns on existing equity investments. |
| Risk | Involves risks associated with market fluctuations and company performance. | Amplifies both potential gains and losses, increasing risk exposure. |
| Example | Buying and selling shares of Apple Inc. on the stock market. | Using a loan to purchase additional shares of Apple Inc., aiming to increase return on equity investment. |
| Aspect | Pros | Cons |
| Potential Returns | Offers the potential for capital appreciation and high returns over time. | Subject to market volatility and potential for losses. |
| Diversification | Allows for diversification of investment portfolio, spreading risk. | Diversification does not eliminate risk entirely; all investments carry some level of risk. |
| Liquidity | Equity markets are highly liquid, allowing for easy buying and selling of shares. | Liquidity can vary depending on market conditions and specific stocks. |
| Ownership Rights | Provides shareholders with ownership rights, including voting privileges. | Shareholders may have limited influence on corporate decisions. |
| Income Potential | Offers opportunities for dividend income and other forms of distributions. | Not all stocks pay dividends, and income is not guaranteed. |
| Market Access | Provides access to a wide range of investment opportunities and sectors. | Requires knowledge, research, and understanding of market dynamics. |
| Growth Opportunities | Equity investments offer the potential for long-term wealth accumulation. | Requires patience and discipline, as returns may take time to materialise. |
| Transparency | Offers transparency through regulatory disclosures and financial reporting. | Market transparency can be affected by factors like insider trading and market manipulation. |
1. Is fundamental analysis more accurate than technical analysis?
It depends on the investor’s strategy and the market conditions. Both approaches have their strengths and weaknesses, and some investors use a combination of both for a more comprehensive analysis.
2. What is ‘Growth’ in the Equity Market?
“Growth” in the equity market refers to the increase in a company’s earnings, revenue, or market value over time.
3. What is stop-loss in equity trading?
A stop-loss is a predetermined price level set by a trader to limit potential losses on a stock position.
4. Are stocks and equities the same?
Yes, “stocks” and “equities” are often used interchangeably to refer to ownership shares in a company.
5. What Is Equity in NSE?
“Equity” in the National Stock Exchange (NSE) refers to ownership shares of publicly traded companies listed on the exchange.
6. What Are Equity Trading Holidays?
Equity trading holidays are days when stock exchanges are closed, and equity trading activities are suspended.
7. What Are the Timings of the Equity Market?
The equity market in India operates on weekdays from Monday to Friday. The regular trading hours are from 9:15 AM to 3:30 PM Indian Standard Time (IST), with pre-market and post-market sessions also available for certain activities.