Equity

Equity, in the most common trading sense, is a share of ownership in a company. When you buy a stock, you are buying a small slice of that business, which is why stocks are often just called "equities." If the company grows in value or pays out profits, your slice can become worth more or generate income; if the company loses value or fails, your slice can shrink toward zero.

Equity exists as a counterpart to debt. A company can raise money by borrowing (issuing bonds or taking loans) or by selling ownership stakes (issuing stock). Debt holders get paid back on a fixed schedule regardless of how well the business does, and get first claim if the company goes bankrupt. Equity holders have no fixed payback schedule and stand last in line if things go wrong, but they get to keep all the upside if the business does well. That trade-off, more risk, more potential reward, is the core idea behind the word.

In a trading account, "equity" has a second, narrower meaning: it is the current total value of your account if everything were liquidated right now. That equals your cash plus the market value of your open positions, adjusted for any unrealized gains or losses. This account equity number moves constantly as prices move, and it is the figure brokers use to check whether you still meet margin requirements or day-trading minimums.

The nuance that trips people up is that "equity" can mean the security itself (a share of Apple stock is "an equity"), the asset class as a whole ("equities were down today" means stock markets broadly fell), or your personal account balance ("my equity dropped after that trade"). Context tells you which one is meant, but beginners often mix up "my equity" (account value) with "an equity" (a stock).