Equity Market: How Does It Work and Its Types


Key Takeaway:

  • Equity markets are platforms where companies can sell their shares to the public and investors can buy and sell these shares. They play an important role in the economy by providing companies with capital and investors with opportunities to invest in them.
  • The Equity Market operates on the principle of supply and demand, where the stock prices are determined by factors such as company performance, economic conditions, investor sentiment, and political events. In general, a strong economy and positive company performance can lead to higher stock prices, while negative news can lead to lower prices.
  • Participants in the equity market include individual investors, institutional investors, brokers, and market makers. Types of equity markets include primary markets, where new stocks are issued, and secondary markets, where previously issued stocks are traded.
  • Examples of major equity markets include the New York Stock Exchange, NASDAQ, and Tokyo Stock Exchange. These markets are important indicators of the economy and provide opportunities for investors around the world to invest in global companies.
  • Pros of the equity market include the potential for high returns, liquidity, and the opportunity for companies to raise capital. Cons include market volatility, potential for investment losses, and the negative impact of market crashes on the economy.

Are you looking to understand and invest in the equity market? Learn everything you need to know and consider before you get started, including what an equity market is and what types you can invest in.

Equity Market Overview

Equity Market: An Overview

An equity market, also known as a stock market or share market, is a financial marketplace where publicly traded companies issue and trade shares. Investors buy and sell these shares in the expectation of capital appreciation and dividends. The equity market plays a crucial role in the allocation of capital for companies and investors, affecting the economy, employment, and wealth creation.

The stock market comprises two primary types of shares - common and preferred. Common stocks allow shareholders to vote at annual meetings and participate in the company's growth and profits through price appreciation and dividends. In contrast, preferred stocks provide fixed dividends but do not offer voting rights. Usually, common stocks have a higher potential for capital gain, while preferred stocks offer more stability.

Unlike other markets, equity markets do not have a fixed price or quantity of shares. Instead, the prices fluctuate based on the supply and demand of the shares and the company's overall performance. This volatility can range from gradual changes over an extended period to sudden surges or drops caused by economic changes or company announcements.

In recent years, the equity market has seen its share of ups and downs. In 2020, the market plummeted due to the COVID-19 pandemic, causing widespread panic and uncertainty. However, since then, it has made a remarkable recovery with record-breaking highs in 2021.

To illustrate the power of the equity market, consider the story of Google's stock. When the tech giant went public in 2004, its stock was sold for $85 per share. Today, 17 years later, that same share is worth over $2,200. This incredible increase in value proves the potential of the equity market to generate wealth for investors.

What is Equity Market?

Equity market refers to a platform where stocks and shares of companies are traded publicly. It is also known as the stock market or share market. Investors purchase a share of ownership in a company through equity market, and this share is also known as a stock. The equity market is based on supply and demand dynamics, and the price of a stock fluctuates depending on various factors such as market trends, performance of the company, political and economic changes.

In a nutshell, the Equity Market is a public trading platform where investors buy and sell stocks or shares of companies with the primary goal of acquiring ownership of that company. The equity market is regulated by the government and operates under specific guidelines, restrictions, and requirements that offer protection to investors.

The equity market has two types: primary and secondary. Primary equity market is where new stocks are offered to investors through initial public offerings (IPOs). In contrast, the secondary equity market involves trading of already issued stocks. Examples of equity market include New York Stock Exchange (NYSE), NASDAQ, and Tokyo Stock Exchange.

A significant event in the history of the equity market is the 1929 stock market crash that led to economic depression and financial losses for millions of investors. The crash resulted from various economic failures, lack of government regulations, and an over-inflated market. The aftermath of the crash led to the establishment of market regulations and the creation of the Securities and Exchange Commission (SEC) in the United States.

How does Equity Market work?

To understand the equity market, we must know about its participants and types.

This section will introduce these two sub-sections. We need this info to comprehend how the equity market works.

Participants in the Equity Market

The stock market involves various players who make the Equity Market functioning possible. Anyone from an individual investor to a large financial institution can participate in the Equity Market and contribute to the buying or selling of shares. The participants are further categorized based on their roles in the marketplace.

Market makers enable liquidity by creating bid-ask spreads, while buy-side and sell-side individuals engage in transactions through brokers. Professional money managers pool investments on behalf of investors in institutional trading, while high-frequency traders use algorithmic tools to make rapid trades. Investment bankers facilitate capital markets offerings such as Initial Public Offerings (IPOs) and Secondary Offerings, while research analysts provide insights that influence investment decisions.

Unique forms of participation include Retail Investors, whose purchasing and selling behaviour can impact stock prices as well as Corporate Insiders. These insiders have access to material non-public information about a company's financial health which can affect trading activity.

In 1602, Dutch East India Company executed the world's first officially recognized public company share issue via Amsterdam Stock Exchange-like institution where people could trade shares for a publicly traded company for the first time ever raising equity capital in practicality. This event marked the beginning of modern stock markets.

Get ready to choose your favorite type of equity market because the world of investing is diverse enough to make your head spin (or maybe that's just the stock market volatility).

Types of Equity Market

Equity Market Classifications

A comprehensive understanding of the different types of equity markets is crucial for investors. Here's a breakdown:

Type of Equity Market Description Example Primary Market A market where new securities are issued and sold to the public directly by companies. Facebook's Initial Public Offering (IPO) Secondary Market A market where securities that have already been issued are bought and sold among investors. New York Stock Exchange (NYSE) Growth Market A specific type of secondary market that features some smaller, early stage companies with significant growth potential or revenues. Euronext Growth Index in Europe

It's worth noting that stock markets around the world function similarly, with variations based on location and regulations.

Did you know? NASDAQ stands for National Association of Securities Dealers Automated Quotations and was founded in 1971.

When it comes to equity market examples, think of it like a buffet - there's something for everyone, but you might end up regretting your choices later.

Equity Market Examples

To comprehend equity markets, such as the NYSE, NASDAQ, and TSE, you must dig into how they operate. And, the different types of these markets. Let's look at certain examples of equity markets across the globe. Plus, the various pros and cons of each.

New York Stock Exchange

The famous American equity market situated in the heart of New York City is a business that deals with the trading of stocks and securities through brokers, both online and offline. This exchange system is responsible for facilitating trades between buyers and sellers, setting listing requirements, and maintaining market stability.

Through this system, firms can raise capital by issuing stock to the public via initial public offerings (IPOs) or secondary offerings. The New York Stock Exchange also offers a market for investors to buy and sell those publicly traded shares.

In addition, It's fascinating that the NYSE divides its exchange into three unique tiers: The NYSE equities exchanges account for 98% of total U.S. Equities trading volume - provides market participants with greater choice in how they execute their trades.

Don't miss out on an opportunity to invest in some of the world's biggest brands like Coca-Cola, Disney or Amazon whose shares trade on this prestigious exchange. Take advantage of what this equity market has to offer today!

Thinking of investing in NASDAQ? You might as well trade your firstborn for a chance at a higher return.


The electronic marketplace that facilitates trading on stocks exchange is known as NASDAQ. It was established in 1971 with the vision to create a more efficient trading system using computer technology. Today, it has become one of the largest stock exchanges worldwide, second only to the New York Stock Exchange (NYSE).

Name NASDAQ Founded 1971 Headquarters New York, United States Listed Companies Over 3,300 companies as of October 2021 Largest Company by Market Capitalization as of November 2021 Apple Inc. (NASDAQ: AAPL)

Known for its high-tech image, NASDAQ mostly lists innovative or fast-growing tech companies like Apple and Google. Additionally, it operates through a dealer network instead of an auction market where buyers and sellers submit bids and offers. Instead, dealers act as intermediaries between the buyers and sellers.

In recent years, NASDAQ has continued to make strides in innovation such as being the first exchange to use Electronic Communication Network in its dealings and also creating indexes like the NASDAQ Composite Index (IXIC) which tracks all listed securities except for rights or warrants.

It is not uncommon for successful companies like Dropbox to be listed on NASDAQ. In 2018 Dropbox went public on NASDAQ and raised $756 million with an initial public offering (IPO). This made it one of the most successful IPOs of the year.

The Tokyo Stock Exchange: where people go to buy low and sell Godzilla-high.

Tokyo Stock Exchange

The Tokyo Exchange is one of the largest and most well-known stock exchanges in the world. It is renowned for its reputation as a hub for trading technology and has been facilitating the trade of securities in Japan since 1878. With over two thousand listed companies, investors have ample opportunities to invest in a range of sectors, such as electronics, automobiles, and pharmaceuticals.

Investors can enter the Tokyo Exchange through a brokerage firm as an individual or institutional trader. The exchange offers various types of financial instruments like stocks, bonds, and exchange-traded funds (ETFs). The innovative TOPIX index tracks the performance of the top 2,000 companies on the exchange, providing investors with a reliable indication of market sentiment.

A unique aspect of the Tokyo Exchange is its infamous Morning Call announcement each morning. The statement intends to provide investors with insights into key market developments to help them make more informed trading decisions throughout the day.

Aspiring investors should thoroughly research markets before investing in any asset class to mitigate risks associated with investments. Additionally, diversifying investment portfolios between different industries can lessen investor exposure to stock market volatility while maximizing potential returns.

Pros and Cons of Equity Market

In this section, we will discuss the advantages and disadvantages of investing in equity markets. Equity markets provide investors with opportunities to build wealth and earn profits, but they also come with their own set of risks and challenges.

  • High returns: Equity markets have the potential to generate high returns over the long term.
  • Liquidity: Equity markets are highly liquid, which allows investors to buy and sell their investments quickly and easily.
  • Diversification: Equity markets offer investors the opportunity to diversify their portfolios by investing in a wide range of companies and industries.
  • Ownership: Investing in equity markets allows individuals to become part owners of companies and benefit from their growth and success.
  • Volatility: Equity markets are prone to volatility and fluctuations, which can result in significant losses for investors.
  • Risk: Investing in equity markets involves a high level of risk. Companies can face financial difficulties or even go bankrupt, causing their stock prices to plummet.
  • Expertise: Investing in equity markets requires a certain level of knowledge and expertise. Without proper research and analysis, investors may make poor investment decisions.
  • Emotional investing: Investors often make the mistake of buying and selling based on their emotions, which can lead to poor investment decisions.

It is important to consider both the advantages and disadvantages before investing in equity markets. One unique detail to note is that market conditions can greatly impact equity investments. For instance, if the economy is in a recession, equity investments may not perform well.

To mitigate some of the risks involved, investors should consider diversifying their portfolio, investing for the long term, and seeking advice from financial experts. It is also essential for investors to conduct thorough research and analysis before making any investment decisions. By following these suggestions, investors can potentially benefit from the advantages of equity markets while minimizing the risks.

Five Facts About Equity Market: What It Is, How It Works, Types, and Examples:

  • ✅ The equity market, also known as the stock market, is a platform for buying and selling shares of publicly traded companies. (Source: Investopedia)
  • ✅ The equity market enables companies to raise capital by selling shares to investors. (Source: The Balance)
  • ✅ The primary market is where new shares are issued, while the secondary market is where existing shares are bought and sold. (Source: NSE India)
  • ✅ The stock market can be volatile and affected by various factors such as economic conditions, company news, and investor sentiments. (Source: CNBC)
  • ✅ Examples of popular equity markets include the New York Stock Exchange (NYSE), Nasdaq, and Tokyo Stock Exchange. (Source: Reuters)

FAQs about Equity Market: What It Is, How It Works, Types, And Examples

What is an Equity Market?

An Equity Market refers to a market where shares or stocks are bought and sold by investors. These markets are typically regulated and run by stock exchanges to ensure fair and transparent trading.

How does an Equity Market work?

Equity markets work through the buying and selling of shares in publicly-traded companies. Investors buy shares in the hope of making a profit when the value of the shares increases. Conversely, they may sell their shares if they feel the value is going to drop.

What are the types of Equity Markets?

There are two main types of equity markets: primary and secondary. Primary markets deal with the initial sale of shares from a company to the public, while secondary markets involve the buying and selling of shares between investors.

What are some examples of Equity Markets?

Some of the most notable Equity Markets include the New York Stock Exchange (NYSE), NASDAQ, London Stock Exchange (LSE), and Tokyo Stock Exchange (TSE).

What is the difference between Equity Markets and Stock Markets?

Equity Markets and Stock Markets are often used interchangeably, but Equity Markets deal specifically with the buying and selling of shares in publicly-traded companies. Stock Markets, on the other hand, can refer to a broader range of financial instruments, including bonds, derivatives, and other types of securities.

What are some risks associated with investing in Equity Markets?

Investing in Equity Markets can come with several risks, including fluctuations in the value of shares, company bankruptcies, economic downturns, and trading errors. It's important for investors to fully educate themselves on the risks before investing and to diversify their portfolio to minimize risk.