Equities

What are Equities?

Equities trade on global stock markets in the form of shares. Buying shares of companies like Apple, Coca-Cola, or even a little regional bank buys you a small piece of that business that gives you a claim on its future profits and assets. You'll hear "equities," "stocks," and "shares" used interchangeably in the news and financial reports, but there are subtle differences. Equity is the broader term that refers to ownership, while a stock is a form of equity and shares are individual parts of a company's stock.

Equities vs. Stocks

In everyday use, stocks and equities describe the same thing: an ownership stake in a company that's publicly traded on a stock exchange. Technically, though, stocks are a specific type of equity, and equities is the broader umbrella term that can also cover mutual funds and exchange-traded funds, as well as private ownership stakes that never trade on a public exchange. Every stock is an equity, but not every equity is a stock. That distinction matters more when you start digging deeper into financial statements, brokerage reports, or Wall Street research.

Public vs Private Companies

The main differences between public and private companies are ownership and access to transparency. A public company sells shares on a stock exchange that anyone can buy. In exchange for using public capital markets to raise funds, it must regularly disclose detailed financial information to regulators and the public. A private company's ownership is held by a limited group, such as founders, venture capital firms, or family members. It can’t raise money through public markets, but it can keep its finances confidential and limit who owns a piece of the business.

Common vs Preferred Stock

Common stock and preferred stock are generally the two types of stocks that publicly traded companies offer. Both classes of shares can be bought and sold on public exchanges. Most everyday investors buy common stock, but there are advantages to preferred, depending on the kind of returns and risk you’re looking for.

What Is the Stock Market?

The stock market is a global marketplace where investors buy and sell stocks, which are shares of publicly traded companies. When you own stock in a company like Microsoft or PepsiCo, you own a small piece of that business. That ownership gives you a claim on its future profits and assets. Stock prices are set in real time by supply and demand. When more investors want to buy a stock than sell it, the price rises. When more investors want to sell than buy, the price falls. Say you buy 100 shares of a company at $50 a share. If the company grows its profits, investors can see that as a sign of its strength, and they’ll buy more stock. That demand may push the share price up to $65, and your stake has grown to $6,500 from $5,000. But if the company expects profits to drop, the stock may not look as attractive to investors, and they’ll want to sell it. The share price could drop to $35, and your stake has now shrunk to $3,500. That constant trading and repricing, multiplied across thousands of companies and millions of investors, is the stock market.

NASDAQ vs NYSE

The Nasdaq and the New York Stock Exchange (NYSE) are the two largest stock exchanges in the United States, and both let investors buy and sell shares of public companies. Their differences lie between how they operate, their requirements for listing, and the types of companies that list on each exchange.

How Does an IPO Work?

When a private company sells a piece of its business in the form of stock to the public, the process is known as an initial public offering, or IPO. Companies go public to raise a large amount of cash at one time. They can then use that money to expand operations, promote themselves, or fund research without taking on a bank loan. Before an IPO, founders, employees, other insiders, and venture capital firms may own a piece of the company. Going public lets them convert their ownership stakes into cash, since private shares can be hard to sell.

What is Market Capitalization?

Market capitalization tells you how big a publicly traded company is through the total dollar value of its outstanding shares. It’s a constantly changing figure based on how much investors think a stock is worth. Because prices fluctuate based on supply and demand, market cap provides a real-time valuation of a company.

What is a Brokerage Account?

A brokerage account is an account that allows you to buy and sell investments such as stocks, bonds, and funds. You open your account through a brokerage. Often just called a broker, it’s a firm licensed to place trades on the stock market on your behalf. Fidelity Investments, Charles Schwab, and Vanguard are among the biggest and most popular. Think of a brokerage account as a bank account built for investing. You add money to it and use it to buy investments that are held in the account until you sell them. Imagine you transfer $1,000 from your checking account into a new brokerage account. You use $500 to buy five shares of a stock trading at $100 per share, and the other $500 sits in the account as cash, ready for your next purchase. If the stock rises to $120, your five shares are now worth $600, and your account holds $1,100 in total.

Stock Order Types

Stock orders are the instructions you give your brokerage about how and when to buy or sell a stock. The three order types are market orders, limit orders, and stop-loss orders. Each order gives you different control over the timing of your trade and the price you pay or receive.

What is Fundamental Analysis?

Fundamental analysis is a way of determining what a company is actually worth. You study its finances, its business, and the economy around it to see what price the stock should be trading at. You then compare that estimate to its current price. That estimate is called intrinsic value. It’s what the business is worth based on the money it can produce over time, regardless of what investors are paying for it today. If intrinsic value is higher than the stock price, the stock may be undervalued. If it’s lower, the stock may be overvalued.

What is Technical Analysis?

Technical analysis studies the patterns in a stock’s chart to predict where the price is headed next. It does not take into account a company’s products or services or anything else about its business. Instead, it focuses on only two factors: stock price and volume. The foundation underlying this approach is that historical stock price behavior tends to repeat itself. By identifying a pattern in past price performance, technical traders attempt to predict future price movement. Modern technical analysis finds its roots in Dow Theory, which was developed by Charles Dow in the late 1800s. In essence, Dow Theory identifies a series of higher highs and higher lows in a stock chart as an uptrend. Likewise, stocks making a series of lower highs and lower lows are considered to be in a downtrend. This idea that a trader can look at a pattern of past price performance and predict that pattern will continue is the basis of technical analysis.

Value vs. Growth Investing

Value investing means buying stocks that look cheap compared with what the company is really worth on the bet that the market has priced them too low. Growth investing means buying stocks of companies whose sales and profits are rising faster than average, even if you pay a high price now for that future growth. They’re two of the most popular strategies for everyday investors, and each one can play a role in your portfolio.

What is Index Investing?

Index investing is a strategy where you buy a fund that tracks a market index. Your money rises and falls with that broad cross-section of the market instead of betting on a few individual stocks. An index is a list of companies chosen by a fixed set of criteria. The most common index is the S&P 500, which tracks 500 of the largest publicly traded companies in the U.S. and is a good benchmark for the overall market. By bundling the companies on an index, in roughly the same proportions, an index fund mirrors its performance. Imagine you put $1,000 into an S&P 500 index fund. With that single purchase, you own a small piece of Apple, Microsoft, Nvidia, JPMorgan Chase, Costco, and hundreds of other companies. If the S&P 500 rises 8% over the next year, your $1,000 grows to about $1,080. If the index falls 8%, your investment drops to about $920.