Equity

    By
    Andrey Orlov
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    1767

    What is equity?

    In accounting and finance, equity is the residual claim of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists. Simplified, you can see equity as ownership.

    Example: A property owner takes out a mortgage to buy the property. The equity the owner has is the difference between the outstanding debt to the mortgage broker and the current market value of the property.

    In an accounting context, shareholders‘ equity represents the remaining claim on assets of a company, spread among individual shareholders of common or preferred stock.

    Compare: Balance sheet

    In trading, equity is usually used as describing the shares or stock owned in a company, or other types of security. In this sense, equity is one of the main asset classes used in strategies for trading and investment.

    If your strategy involves margin trading, then equity can refer to the value of a security in your margin account, after excluding the funds borrowed from your broker.