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The term “trading of equities” is sometimes used synonymously with stock trading. While they are very similar and essentially are the same thing, there are subtle differences between the two. For instance, equity trading is the buying or selling of a company’s stock through major stock exchanges, just like trading stocks/shares. However, the two investment markets differ because of the way they are traded in investment and management firms. The trading of equities is much more specialized by offering in-depth market research, analysis, trading systems, and capture better executions due to trading floor access. Equities firms are generally setup with larger investment banks and firms.
show moreBack in the day the only way to trade equities was in person in brokerage firms, today traders can do so right from their very own computer via an online trading platform. The way it works is, investors bid on stocks by offering the price they want to pay, and sellers ask for a price they want in exchange for the stock. A trader will conduct extensive research into the company’s stock and decide whether it’s a good buying opportunity or whether it’s time to sell. Depending on the company’s current performance and foreseen future performance will determine the trader’s decision. Traders can only trade equities when the index for that company’s stock is open.
However, a trader can still place buy or sell orders outside of this window. To successfully trade equities a trade must take in account the whole market situation, rather than just news related to their stock.
There are three main advantages to investing in equities. Let’s review these advantages in the points below.
Stocks/equities are highly liquid investments because the are traded all around the world on major exchanges. As well, the markets are essentially open 24/7 because they are traded all over the world. Therefore, when it comes time to sell your stocks, you have an available market that is eager to pick them up.
Large and established companies will often pay dividends for owning their stock. What this means is the trader receives a portion of the companies profits periodically throughout the year or at the end of the year. Equity investors can then reinvest their dividend money into the same stock, thus receiving more dividends. Or they can take the profits as additional passive income.
One of the best benefits of equity investments is capital appreciation. When the company you are invested in earns a profit, they tend to reinvest the money into the company. This promotes growth within the company thus increasing your stocks price as well as your dividend payments.
Equity investors can diversify their investment portfolios by buying stock in varying companies. That way if a certain market drops and the company’s stock drops with it, you can still make money in the other market in which you bought stock.
