Define Trading on Equity: Advantages and Disadvantages If you are studying corporate finance or trying to understand how companies use debt to increase returns for shareholders, equity trading is an important concept to know. But what exactly does equity trading mean, and how does it affect a company's profitability? In simple terms, equity trading refers to the use of borrowed funds or debt alongside shareholders' equity to increase the potential return earned by equity shareholders. It is closely associated with financial leverage and can increase both potential gains and financial risk. This guide explains the trading on equity meaning, its formula, examples, advantages, disadvantages, and its relationship with financial leverage. Visit us!