What is meant by equity in stock market?
What is the difference between equity trading and equity investing? Today we will know the answer of these questions in this video. So you watch this short video carefully and understand what equity is. Hello friends, let us know what is equity. Friends equity means ownership of a business. We know that to buy the shares of a company means to buy a small part of that company. And in the language of investing, this small part is called equity.
So we can say that by buying shares of a company, we buy equity in that company. Let us understand this with an example. Let's say five friends started a company together. The five friends invested 2-2 crores and started the business with 10 crores. In the legal registration of the company, he divided the company into total 1 crore shares. At the same time, everyone decided that all the people in the company would work equally. Therefore, everyone divided the share of the company equally among themselves. In this way, each of the founders got 20 lakh shares out of the total 1 crore shares of the company. So friends, we will say here that 100% ownership or equity of the company is currently with the founder of the company. Whose total value is currently Rs 10 crore. Because there are total 5 founders of the company, then everyone will have 20% equity of the company.
Now let's assume that after some time the company needed Rs 5 crore to grow. For this, all the founders sold the company's total 50% equity i.e. 50 lakh shares in the IPO and raised a total of Rs 5 crore from the public. Now friends, we can see here that the company sold its 50 lakh shares in the IPO, which was equal to the total 50% equity of the company. This means that the company sold 1% of its equity for every 1 lakh shares in the IPO. If we buy 1 lakh shares of this company, then we will buy 1% equity in this company.
we will become the owner of 1% of this company. So friends, equity in investing like this tells nothing but the ownership of a company. Companies sell their equity to the public by dividing it into shares. The more shares an investor buys in a company, the more equity he has in the company.
This is the reason why friends often call stock market as equity market, stock investing is called equity investing, and stock trading is called equity trading. Always remember that whenever we buy stocks of a company, we are buying equity in that company.
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