Understanding Equity Trading

Equity trading involves the exchange of indices, stocks, preferred stocks and options.  However, trading equities is much more involved than that as it allows for the exchange of a variety of different securities in the public market.  This type of trading also involves many diverse skills and strategies.  Experienced equity traders have developed personalized trading strategies that are designed to help them meet their goals.  Equity trading has completely replaced debt trading.

Stock Exchanges

Equity trading is carried out in public markets all over the world.  The physical buildings where these exchanges take place are known as stock exchanges.  These trades can be placed at nearly any time night or day.  It is also possible to use the futures market to trade equities as well.  Equity trading can also be carried out through the internet.  Individual investors can now place purchase and trade orders through a broker or a trading platform for nearly every single stock exchange in the world. The largest stock exchanges include the NYSE (New York Stock Exchange), London Stock Exchange and Tokyo Stock Exchange.

Important Equity Terminology

Traders must understand what offer and bid prices are in equity trading.  A bid price is the quoted price of a stock or index that an investor wants to purchase or trade.  The offer price is the price at which the investor actually purchased or traded the index or stock.  The spread is the difference between these two prices and is the amount of the losses or profits that are made from the trade.  A common stock indicates proportional ownership of a company.  Preferred stocks have both debt and equity components.  Stock indices are weighted averages of a multitude of different stocks from one sector of the stock market.  Arbitrage in stock trading means that equities may be traded as a combination of the value of stocks and options.