Difference Between Stocks & Equities
Stocks or equities are traded on stock exchange markets such as the New York Stock Exchange (NYSE) or the London Stock Exchange. They are tradable assets that can be owned by individuals, companies, mutual funds, investment banks and governments . Today's international markets enable stocks to be bought and sold globally. Trading in equities is governed by market rules and overseen in the United States by the Securities and Exchange Commission.
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Types of Stock or Equity
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Stocks are a type of equity, though the terms are used interchangeably to mean any stocks, shares or ownership interest in a corporation. They are individual shares of a company that are issued in return for cash. Companies issue stocks to raise capital to fund corporate growth, acquisition and investment. Owning shares is therefore having a stake or equity in the company. Other classes of stocks include preferred stocks, which pay a fixed divided irrespective of the performance of the company, thus acting like a bond. Restricted stock has special trading conditions and is often equity that has been retained or provided to founders of companies or to employees through stock options.
Benefits to Share Ownership
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As a shareholder, you can enjoy the benefits and participation in the company you own. For most people, share ownership is passive, for others it is active. As a shareholder, you have rights to elect the board of the company, attend annual general meetings and initiate and vote on resolutions that affect the company. Depending on the equity stake, you may be able to sit on a board and actively participate in the general direction of the company. Companies that own significant shares and equity in another business often have strong sales, marketing and commercial ties. For example, Ford Motor Co. owns a significant stake in Mazda, allowing it to work on joint research and development. British Airways has owned a stake in the Spanish airline Iberia since 2000, allowing it to jointly market and operate air travel routes. This stake has allowed it in 2010 to announce a merger with Iberia.
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Trading
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Stocks are bought and sold, held in a stock portfolio added to over time. Some stocks pay out a regular annual or quarterly dividend, a cash payment share of the profits. Large institutions like investment banks, mutual funds or pension funds own equity stakes in a wide variety of companies. For example, the Ontario Teachers' Pension Plan Group owns $96 billion of investments. This allows it to tap into a broad range of investment types and opportunities and provides it with a portfolio of complementary companies.
Risks
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Investing in stocks offers rewards but comes with risks. Prices of stocks can rise and fall dramatically and the ability to buy and sell and gain or lose money is great. Short-term investing or day trading can bring high risk and high rewards, whereas longer-term investing presents lower risk and more stable returns.
Government Ownership
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Governments also own equity stakes in companies. The $80 billion bailout by the U.S. Government of AIG in September 2008 resulted in the government becoming the single largest shareholder, owning 80 percent of the stock. Many other governments around the world own equity stakes in parts or whole corporations.
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