What Is Equity Trading?

Key Highlights

• In a market economy, issuers and buyers of stocks meet each other in equity markets.
• Companies raise capital, and investors buy stakes in a company through equity markets.
• The sale of stocks can be carried out in the public and privately operated markets.
• The venue for trading changes according to the type of issue.

Understanding Equity Trading Meaning

A company can raise its equity by issuing shares to the public. The equity shares represent a percentage of the company's ownership. There are many exchanges in India where these shares can be traded, such as the NSE and BSE.

The sale or purchase of equity shares on the financial markets through exchanges is known as equity trading. Online stock trading has replaced handwritten sheets of paper as stocks because of the advent of technology. As it diversifies your portfolio and delivers good returns, stocks are a favourite investment option under today's scenario. You must have a Demat account and a trading account to buy or sell these securities.

Before investing and trading in stocks, you must also know that the surrounding environment impacts stock prices. For example, the share price of TCS Company will rise if demand for its shares rises as a result of them landing a project abroad, and the reverse will occur.

Importance of Equity Trading

Equity market trading is important because it creates wealth for the investors. In addition, the equity market enables companies to raise capital through an initial public offering and then list their shares. After that, these stocks continue to trade on the primary market. Equity trading is a simple process of transferring shares from one owner to another using the market mechanism.

What is the Process of Equity Trading?

The process of equity trading is explained below in detailed points.

1. Get a Demat account

First, you need to set up your Demat and trading accounts. The trading account is important because it executes transactions while the Demat account holds your shares.

2. Take stock prices

Different factors impact the price of stocks. Therefore, you must understand those factors before investing to make the most efficient investment and exit decisions.

3. Get to know the shares

A basic analysis is a key component for investment and trading, allowing you to understand its true value. When analysing the company or its shares, you must consider several factors, such as assets, enterprise value, liabilities and past performance.

4. Put a trade order

When your corporate analysis is complete, you must decide whether or not to invest and figure out if it will be buy or sell.

You can make an order at a time when you've made your decision and the system will verify that the purchase price matches the offer from buyers or sellers, which shall then be executed accordingly. But the stock market changes very frequently, which could harm your business. A stop-loss order can be placed to deal with such scenarios. When you reach the stop-loss price, you wish to exit the trade. You will automatically go the trade in this type of order.

Advantages of Equity Trading

The benefits of equity trading are as follows.

1. During periods of inflation, equity provides the best returns. It means that equities are the best hedge against inflation. This is important because it enables you to live daily without cutting costs.

2. The fact is that equity is a much more risky investment compared to savings accounts or fixed deposits. But you're also earning more money because of this higher risk. You must focus on managing your risks rather than pursuing returns as an equity trader. The equity market performance can be significantly improved if the risk is managed.

3. The majority of well-established businesses' stocks regularly pay dividends. A dividend is the amount of money to be paid by a corporation to its shareholders following the company's earnings. This guarantees consistent equity income.

4. As a financial planning tool, you can use stocks to create wealth over the longer term. Direct and indirect participation in the equity market is possible using exchange-traded accounts or mutual funds.

Conclusion

Equity trade is easy, but it's risky. Do your research and become familiar with the basics of equity trading. To get started with stock market trading, the first thing you have to do is set up an active account.