Equity Securities

A share of stock is a fractional ownership claim on a company: a right to a slice of its profits and assets, standing LAST in line behind every other claimant. That residual position explains equity's character as an asset class, unlimited upside, first-loss downside, and the vocabulary of this lesson is the anatomy of the claim.

The residual structure makes equity a leveraged claim on the firm's fortunes: a company whose asset value swings 10 percent can easily produce equity swings twice that when debt sits between assets and shareholders, the leverage arithmetic of the markets course operating at the corporate level. Preferred stock sits between debt and common: a fixed dividend that must be paid before common dividends, usually no vote, and priority in liquidation, bond-like income with equity-like legal form.

The numbers attached to a share

How shares reach the market

Companies sell shares in the primary market, an initial public offering when first listing, follow-on offerings afterwards, receiving the proceeds; everything after that is the secondary market, investors trading among themselves with no cash to the company, which is the market the microstructure course described. Share classes complicate the picture factually: some companies list classes with different votes per share, so economic ownership and control can diverge, and the shares outstanding number needs reading alongside the class structure. Free float, the fraction actually available to trade rather than locked in insider or state hands, is the supply that matters for liquidity and for index weights in the next lesson.