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Equities (Stocks and Shares)
Asset Classes within the Financial Markets
Equities (Stocks) Defined
What are Equities (Stocks and Shares)?
Stocks, shares and equities are terms used to describe units of ownership in one or more companies. The owner, known as a shareholder, will also have the right to a part of the company’s earnings if a dividend payment is made, as well as voting rights.
The terms are often used interchangeably in finance, but there are some technical differences between them that can cause confusion. Equity is the term for a total ownership stake in the company after the repayment of any debt, while a share or stock describes a single unit of ownership. The plural term shares usually refers to units of ownership in a specific company, while equities and stocks are terms generally used to refer to portions of ownership across multiple companies.
Unlike Fixed Income, Equities don’t pay a fixed interest rate and they don’t offer guaranteed income. In other words, investing or trading in equities inherently come with risk.
There are a few ways in which you can invest in equities. Most equity trading refers to the buying and selling of public company shares through a stock exchange or as over-the-counter (OTC) products via a Broker or directly through online trading platforms.
For example, UK companies can list on the London Stock Exchange (LSE). Exchanges have requirements that companies must meet in order to become listed. To be listed on the LSE, a company needs to have been trading for at least three years. It would also need a market capitalisation of at least £700,000. Market capitalisation is the number of outstanding shares in circulation, multiplied by the current share price.
The size of the company also affects the type of equities you can invest in:
- Large-cap: also known as ‘blue chip’ stocks, these are stocks from large companies. They can offer regular dividend payments and steady growth in share prices.
- Mid-cap: these are equities from medium-size companies. They are slightly riskier than large-cap, but still pay a dividend and can have greater potential for growth.
- Small-cap: small company stocks are much riskier. They don’t usually pay dividends, but if the company is successful, the share price can rise dramatically.
The price of shares is affected by several factors that can be both internal and external, according to economic indicators. For example, companies publish their financial results once a year, and if the company is performing well and this is expected to continue, this could have a positive effect on the share price. The opposite also applies. Another influential factor on the price of equities is the general economy. If economic conditions are good, this will have a relative effect on the value of equities.
Market sentiment and demand for shares can increase the price of stocks. The more demand there is for a stock, the higher its price will be. If economic conditions are bad, on the other hand, investor demand for equities is likely to decrease. Share prices can therefore fall, even if a company is performing well.
One can gauge the general performance of equities via a stock market index. In the UK, for example, the main stock market index is the FTSE 100. This measures the performance of the 100 largest companies in the UK by market capitalisation. There are many different indices measuring the performance of equities in different countries, regions and industries.
A trader has a number of options when it comes to trading in the equity market, including investing via a shareholder or investment fund. Some banks also offer ways to invest in the equity market. There are a variety of funds available (equity traded funds) and the services they offer can be different. Some allow traders to manage the shares themselves, while others will manage the portfolio on behalf of their clients for a fee.
It is possible to buy and sell equities through an investment fund, such as an exchange traded fund (ETF). Equity funds invest in a range of shares in different companies. They diversify and spread the risk by investing in equities from different countries, regions and industries. By investing in shares this way, you are taking direct ownership of the underlying asset. This means that if the value of a stock rises, you make a profit. If the value of the stock falls, you make a loss. You also get the benefits of any dividend payouts.
As well as ETF Trading you can also trade the financial markets via spread bets and contracts for difference (CFDs). When share trading in this way, you don’t take direct ownership of the underlying instrument. Instead, you are taking a position on the price movements of that instrument. This is known as derivative trading. Spread bets and CFDs are both leveraged products, which means that you only need to deposit a percentage of the overall value of a trade to enter that trade. This deposit is known as margin. Profits and losses are based on the total value of the trade, not just the margin amount, so, it is possible to make larger profits, as well as larger losses.
An advantage of spread betting and CFD trading is that traders can make money from rising as well as falling markets. This is known as going long or short. The ability to take a short position in this way allows traders to hedge a physical share portfolio if it was losing money in the short term. This can be done by opening an opposite position in the same company’s shares as a spread bet or CFD.
Equity day trading
Day trading is a short-term strategy that involves the analysis of price movements. It requires traders to be alert and quick with their transactions. Day trading strategies aim to buy and sell equities, such as shares, and profit from small price movements when the market is particularly volatile. They then close their positions before the end of the day, in the hope that these small profits have overridden any losses. Day trading is effective within volatile markets, as there is more liquidity and traders are entering and exiting the market often.
Options are derivative contracts that can also be used to trade stocks and shares at a future date, for a specific price. Orders for options are conducted in the same way as equities, with buy and sell offers, and transactions between both products work in a similar way. However, all options have an expiration date, whereas stocks can be held for an indefinite amount of time. In addition, options do not give traders the right to earn dividends or ownership of the asset, whereas equity trading allows for both of these.
Major World Indices
Typical Jobs in Equities
- Head of Securities
- Head of Equities
- Sales Director
- Portfolio Manager
- Fund Manager
- Investment Manager
- Equity Sales
- Equity Sales Trader
- Operations Manager
- Equity Research Analyst
- Equity Trader
- ECM Lawyer
- Algo Trader
- Quant Trader
- Market Maker
- Quant Developer
- Instituational Sales
- Risk Manager
- Compliance Officer
- Settlement Specialist
These are just a few examples of jobs and positions we recruit for within Equities; other roles and specific positions are available.
To see our latest Equities jobs and vacancies, please click here
Find out more about Asset Classes in the Financial Markets
Typical investments: Bonds, debentures, gilt-edge bonds
Risk profile: Low
Fixed-interest investments — sometimes known as fixed-rate securities — are an asset class that sees investors loan their money to a company or government in exchange for a security, in the form of a bond or similar product, that pays an agreed rate of interest. This rate remains the same throughout the duration of the investment. When the investment matures, you’ll also be paid back the original amount you put in.
Read more about Fixed Income here
Typical investments: Purchase of equity in a company listed on the stock exchange
Risk profile: Medium to high
When you buy shares — also known as equities — you are buying a small portion of ownership in a company. Each share represents a unit of ownership, so the company value is divided by the number of shares to give the share price. Shares are traded on the stock market, where the daily value of each company’s shares are listed.
There are a number of factors, such as if the company does well or undergoes a merger, that can cause the value of a business to increase and boost the worth of each share. On the other hand, if the company does badly, the shareholders can face a drop in the worth of their shares.
Find out more about Equities here
Typical investments: Physical currency, bank accounts, savings accounts, cash ISAs
Risk profile: Low
Cash is the asset class that you’re probably most familiar with, as we use it on a daily basis to pay for goods and services. The asset class for cash includes physical currency, the balances of savings and current accounts, cash ISAs, premium bonds, and money market funds.
Read more about Cash Equivalents here.
Typical investments: Commodity futures, Stock index futures, Currency futures, Precious metal futures, Treasury futures.
Risk profile: Medium
Futures are derivative financial contracts that obligate the parties to transact an asset at a predetermined future date and price. Here, the buyer must purchase or the seller must sell the underlying asset at the set price, regardless of the current market price at the expiration date.
Underlying assets include physical commodities or other financial instruments. Futures contracts detail the quantity of the underlying asset and are standardised to facilitate trading on a futures exchange. Futures can be used for hedging or trade speculation.
Find out more information on Futures here
Typical investments:, commodities, currencies, interest rates, market indexes, and stocks.
Risk profile: Medium to high
A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (like a security) or set of assets (like an index).
Generally belonging to the realm of advanced investing, derivatives are secondary securities whose value is solely based (derived) on the value of the primary security that they are linked to. In and of itself a derivative is worthless.
Find out more about Derivatives here.
Typical investments: Oil, coffee, gold
Risk profile: High
Commodities are raw materials that are bought and sold on global markets where supply and demand, as well as other global issues, dictates the price. They can include fuels like oil and gas; precious metals like platinum, gold and silver; agricultural products like wheat, coffee, and dairy products; industrial metals like copper, iron, and steel; as well as many other things. A lot like shares, commodity markets regularly rise and fall, but they tend to be much more volatile.
Find out more about Commodities here
Typical investments: Buying your own home or a holiday home, investing in buy-to-let and commercial projects.
Risk profile: Medium
Investing in property can take many forms, such as buying your own home or getting involved in commercial property, like offices, warehouses, and retail space. There are opportunities to invest in both small and large-scale projects, ranging from a single buy-to-let to joining an investment fund that owns large-scale commercial sites.
Find out more about Real Estate here
Typical investments: Cryptocurrency, Art and antiques, wine, watches, peer-to-peer lending
Risk profile: Low to high depending on investment
Aside from the main five asset classes, there are other areas that you can invest in to really add diversity to your portfolio, though it’s worth remembering that each will have its own levels of risk and reward that you should research.
Although these fall outside of the traditional asset classes, many alternative types have been traded in for a very long time. Art, antiques, stamps, watches, wine, and jewellery are all examples of valuables that have been traded for centuries. On the other hand, there are many new asset classes that have only emerged in the last few years, such as cryptocurrencies and peer-to-peer lending, demonstrating just how diverse the investments marketplace can be.
To find out more about alternative investments here
FINCO Search is a specialist headhunter and recruitment agency to the global wealth management, private banking, financial markets and compliance sectors.
With offices in London and Stevenage we provide a full UK and International service across executive finance, wealth and asset management, compliance and private banking.
FINCO Search is experienced across all Equities markets. Our consultants have successfully managed mandates for C-suite roles, traders, brokers and technical personnel in the European, Asia and US markets.
If you are interested in finding out how we can assist you in finding your next opportunity in the global Equities space, or are growing your sales or trading team and looking to onboard Equities specialists across any front, middle or back office position, then please call us now.
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