Pros & Cons of Trading Equities
An equity market is a capital market in which the equity (or shares or stocks) of companies is traded. This usually happens through centralized exchanges called stock markets or stock exchanges; though in some places OTC markets exist for penny stocks and very small companies that do not meet the requirements for public listing.
Companies issue shares to the public to raise capital to fund their businesses. This results in there being two segments of an equity market; the primary market and secondary market. The primary market is where new share issues first come up for sale through initial public offerings (IPOs) and the secondary market is where these shares are then freely traded for the rest of their life. In return for purchasing shares, investors hope to earn a return through dividends and or capital gains (increases in share prices).
Trading and investing in equities is inherently risky as there are zero guarantees and performance of the investment is entirely dependent on the financial performance of the business and or market sentiment; it is, in fact, entirely possible for the shares of totally worthless companies to see massive gains and shares of financially sound companies to see no growth at all and even decline, simply due to market sentiment and the psychology of crowds. Thus, it is possible to both make and lose vast fortunes in equity markets.
Unlimited Potential for Wealth Creation – Whether you are investing or trading, you can potentially make outsized returns that may not be possible anywhere else.
Quick Entry & Exit – Equity markets are usually very liquid. This means you can buy and sell quickly and easily at any time. Trading now happens almost entirely online and tens of thousands of trades can occur each minute on a busy exchange, with participants all interacting via the internet.
Tax Efficiency – In many jurisdictions, profits from the stock market are tax free or incur significantly lower taxes than income form other sources.
Lack of Experience & Greed Can Ruin You – While it is possible to make vast sums of money, it is also possible to lose vast sums of money. Risk management can help you keep losses to a minimum while maximizing potential profits. Hugely Volatile – Prices of equities can fluctuate wildly and are susceptible to financial shocks and news events, which can impact your ability to generate a consistent return.