The equity market, often also called the stock market, is generally considered to be all of the various exchanges worldwide where company stock is bought and sold. Most industrialized nations have at least one major equity market. A company accepted in a given market may offer shares of the firm for sale through authorized traders who receive a commission based on the value of shares sold or the number of transactions.
Equity is a term meaning ownership in an asset. Typically, a company issues shares of stock with a predetermined value per share. Once the shares are offered for sale in the equity market, the value of the shares changes based on demand for them. The higher the demand, the higher the price of the share and the higher the overall valuation of the company.
Companies use the sale of shares through equity markets as a way of raising capital. The demand for shares on equity markets will be affected by the overall financial performance of the company, the performance of the industry in which the company operates and the overall performance of the exchange. Non-financial events such as elections, wars or crises can also affect demand on equity markets.
In the United States, major equity markets include the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASDAQ) exchange. London’s primary equity market is the London Stock Exchange. In Asia, the primary equity markets are the Tokyo Stock Exchange and China’s Hong Kong Stock Exchange.
Most equity markets have hundreds or thousands of companies offering shares through them. Generally, the value of a given equity market and whether that value is rising or falling is pegged not to the value of all stocks traded but to the value of stocks in a given number of companies. A typical benchmark of the NYSE; is the Dow Jones Industrial Average, which is the average value of stocks in 30 companies. These bell-weather stocks are often referred to as blue chip stocks.
Stocks can be traded on an equity market person-to-person or by computer. In some equity markets, there is a trading floor where authorized traders represent buyers and sellers of stock. These traders offer stocks for sale or make purchases of stocks based on their clients’ instructions. Other equity markets are virtual; there is no trading floor and orders to buy or sell are placed electronically. The first equity market is generally considered to be the Amsterdam Stock Exchange, which began trading the shares of the first joint stock companies in 1602.