The terms "equity market" and "stock market" are synonymous, both referring to the equity interests in publicly held companies, denoted in stock shares, that are traded on stock exchanges or in over-the-counter markets.
The stock market allows investors to purchase an equity interest in companies in the form of stock shares, enabling them to share in a company's profits. For companies, the stock market offers capital for growth through the sale of stock shares without incurring debt. Stock shares are most commonly traded on large, regulated exchanges, such as the New York Stock Exchange or Nasdaq.
There are two primary types of stock that companies issue: common stock and preferred stock. Common stock is most commonly issued by companies and traded on exchanges. When a stock price quote is given, it refers to the share price of the company's common stock.
Common Stock Versus Preferred Stock
Common stock and preferred stock both constitute an equity interest in a company. Common stock ownership usually confers the opportunity to exercise voting rights regarding a company's board of directors and other important company decisions.
Preferred stock does not typically convey voting rights. However, preferred stock usually comes with guaranteed payment at regular intervals of larger dividends than common stockholders receive. Dividends are not guaranteed for common stockholders. The equity interest of preferred stockholders takes precedence over the interest of common stockholders in the event of the company's liquidation. Preferred stock shares are sometimes convertible into common stock shares under certain conditions.
Common stock prices fluctuate in line with a company's profitability and earnings. Preferred stock prices are not generally subject to nearly as much fluctuation in price. Common stock ownership offers greater potential for capital appreciation, but also comes with a higher level of risk and potential for loss.