Stocks and equities are both terms used to describe units of ownership in a company and so it’s perhaps unsurprising that In stock market parlance, equity and stocks are often used interchangeably. However, these terms have some technical differences and they are not quite the same thing. With that in mind, let’s take a look at what the two terms mean and their differences.

　　What Are Equities?

　　Equity indicates an ownership position in an asset. In most cases, equity indicates a total ownership stake in a company. So if, for example, you have a 15% equity in a company, you own 15% of that company and are entitled to 15% of the company’s profits. An equity investment is typically purchased with the expectation that the value of the investment will increase over time. For instance, when you have equity in a business, you expect the value of the business to increase in value so that you can benefit from your stake in the business. By having equity, you are essentially staking your money on the company’s future success.

　　What Are Stocks?

　　While equity describes ownership, a stock describes a single unit of that ownership share. The more stock you buy, the more your equity. Put simply, a stock is the means with which you can engage in company equity transactions. Stocks are generally a tradable form of equity that was created to facilitate the exchange of ownership value in an open market. They might refer to energy stocks, value stocks, large- or small-cap stocks, food-sector stocks, blue-chip stocks, etc. The stocks are traded on large public exchanges and sometimes they are traded in private offerings. When you buy stocks, you are buying equity in a company from someone selling part of or all of their ownership stake in the company. When you sell stocks, you are selling your equity to someone who wants to buy art of or all of your ownership stake. There are two main types of stock that companies issue:

　　Common Stock (Common Shares)

　　As its name suggests, this is the most common type of stock. When a stock price is quoted it represents the price of one share of common stock and each share represents an equal percentage of ownership. If you buy shares of common stock you get voting rights and you also have rights to a company’s residual income (you participate in both the share of the profits and losses of the company). Nonetheless, you are protected from any personal liability when something bad happens to the company or when the company incurs losses that go beyond your stocks’ value, i.e. you can’t lose anything beyond what you own even if the company’s debts and liabilities go beyond that.Preferred Stock

　　If you are a preferred stockholder or holder of preference shares, you are generally paid a fixed dividend above what the common stockholder gets. You also get preference when it comes to being compensated first should a company go into liquidation. This means that common stockholders are the ones who take the maximum risk as they are compensated last when things go wrong. However, preferred stockholders get no voting rights and cannot participate in a company’s decision making.