What Are Equities?
Equity, commonly referred to as stock, represents an ownership stake in a company. When you buy a company's stock, you become a part-owner of that business, entitling you to a portion of its assets and profits. The equity market, or stock market, facilitates the buying and selling of these ownership stakes.
Primary vs. Secondary Markets
The equity market is composed of two main segments:
- Primary Market: This is where new securities are created and sold for the first time. An Initial Public Offering (IPO) is a classic example, where a private company first offers its shares to the public to raise capital.
- Secondary Market: This is what people typically refer to as the "stock market." It is where investors buy and sell securities that have already been issued. Major stock exchanges like the New York Stock Exchange (NYSE) and NASDAQ are secondary markets.
How Stock Prices Are Determined
Stock prices are determined by the forces of supply and demand. If more investors want to buy a stock than sell it, the price goes up. Conversely, if more investors are selling than buying, the price goes down. A company's financial performance, industry trends, and broader economic factors all influence investor sentiment and, consequently, the stock's price.
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