Equity Market: Meaning, Benefits, Types & How it Works?

As an investor, it is vital to understand terms such as equity market, stocks, NSE, BSE, and other related terms. Understanding these helps you in making a wise investment decision especially when you are starting your investment journey. This also helps you avoid any risk while investing. Also, it is important to take advice from an expert before investing. Read more to learn about what is equity market (equity market meaning), the benefits of the equity market, and more details.

What is an Equity Market?

The equity market is a platform for companies to raise capital through different investors. A company issues stocks that investors purchase to gain profits from sales of the stock. The equity market is often called the stock market and is used interchangeably. Investing in equity offers higher returns with higher risks. Before investing, you must assess your risk tolerance and research to minimize any potential loss.

Types of Equity Market

Primary Equity Market

Companies raise capital by listing themselves on the primary market first by raising an IPO (Initial Public offering) to the general investors. The shares of the company get listed on the stock exchanges I.e., NSE and BSE once the IPO is closed.

Secondary Equity Market

The listed shares on NSE or BSE are further held in the secondary market. In this process, the initial investors can exit via stock sale in the live equity market. This gives opportunity to other investors to purchase and sell the shares in the secondary market. Deciding on an entry and exit point, you can plan your investment.

Top Stock Exchanges in the Indian Equity Market

Following are the two top stock exchanges in the Indian Equity Market:

BSE
Founded in 1875, the Bombay Stock Exchange is one of the oldest stock exchanges. It ranks 11^th in the world's largest stock exchanges. There are more than 5500 companies listed on the BSE. It holds the record for the fastest stock exchange with an average trading speed of 6 microseconds.

NSE
The National Stock Exchange (NSE) was established in 1992 and was the pioneer in electronic trading in India. It ranks in the top 15 largest stock exchanges in the world. In 1994, NSE started trading in the capital market, and in 2000, it introduced derivatives.

Equities vs Stocks

Timings of the equity market

The following are the timing for trading in the stock exchange market:  

Equity Shares Formula

You can use the below formula to find Equity shares:

Shareholders’ Equity = Total Assets - Total Liabilities

Pros of trading in the equity market

Trading in the equity market offers some pros such as:

• With the change in stock price, equity shares can give you higher returns along with dividend returns.
• Often equity investment offers higher returns than inflation.
• Using a Demat account, you can invest in equity through stock exchanges like NSE or BSE.
• Along with investing in debt instruments, you can invest in equities to diversify your portfolio and increase your probability of higher returns.

How to trade equity online?

You can trade equity online by following the below steps:

• Step 1: Select an online broker that suits your needs with low fees, a user-friendly platform, and all the required tools.
• Step 2: Provide all required details, sign up for your account, and verify your details.
• Step 3: Research the stocks you want to trade and familiarise yourself with the app.
• Step 4: Buy or sell stocks using the app.

While trading, you must stay updated with all the latest market trends and news that might impact your investments.

Equity Market Procedure

Trading

Buying and selling of stocks and securities through a completely automatic and computerized process is termed under trading. Before placing an order, traders can see the trades on the open platform.

Settlement and Clearing

At the end of a particular day, every investment or trading is cleared and settled that is made throughout the day. The T+2 settlement cycle is followed in stock exchanges in India. After the day’s trading session, the settlement is made within two days after the trade.

Risk Management

Investing in the equity market involves risk which requires a comprehensive system of risk management. Margin requirements, Liquid assets, Pay-ins, and Voluntary close-outs are some of the risk management systems to prevent fraudulent activities.