Equity Markets

Equity market is a place where stocks and shares of companies are traded. The equities that are traded in an equity market are either over the counter or at stock exchanges. Often called as stock market or share market, an equity market allows sellers and buyers to deal in equity or shares in the same platform.

Equities are mostly traded on the stock exchanges in India. In the Indian stock market, equities are available for trading at the National Stock Exchange (NSE) , the Bombay Stock Exchange (BSE) and the latest entrant, Metropolitan Stock Exchange of India (MSE). Shares of stock market listed companies are bought/sold.

Equity share trading is roughly in two forms – spot/cash market and futures market. These are the different types of equity market in India. The spot market or cash market is a public financial market in which stocks are traded for immediate delivery. The futures market is a place where the shares’ delivery is due at a later date.

Equity holders enjoy voting rights and other privileges that only come with ownership, because equity represents a claim on a proportionate share of a company’s assets and earnings. These claims are generally subordinate to lenders’ claims, but only equity holders can truly participate in and benefit from growth in the value of the enterprise.

Some financial instruments have equity characteristics but are not actually equity. Convertible debt instruments, for example, represent loans that convert into shares when a company (the borrower) crosses certain thresholds, thereby turning a lender into an owner in certain events.

Stock options also act like equity in that their value changes with the value of the underlying shares, but the option holders generally do not have voting rights and are not eligible to receive the dividends or other distributions made to bona fide equity holders.

It is important to understand that although balance sheet equity represents the company’s net worth, the company’s shares are ultimately worth only what buyers are willing to pay for them.

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