Why do Stock Markets Exist and what is the importance of Stock Market?
The stock markets are largely considered as publicly available stock markets that are meant for the issuance, buying, and sale of stocks that are listed in a stock exchange. Stocks, sometimes also called equities, signify insignificant ownership in a business, and the stock market is an avenue where investors can choose to buy and sell ownership of such saturated assets. In this article we have discussed importance of stock market by some effective points.
Objectives of the Stock Market – Capital and Investment Profits
The stock market is known to carry two extremely important objectives. The primary one is to help companies raise the capital that they can use to supply and inflate their businesses. If a company decides to offers 10 lakh shares of stock that originally sell for Rs.10 a share, thus that provides the company with 1 Crore Rs. of capital that it can use to expand its business. By offering stock shares rather than borrowing the capital required for business growth, the company evades suffering debt and paying interest charges on that debt.
As per the top brokers in India, another crucial objective of the stock market is to provide investors – those who invest in the company’s stocks – an opportunity to share in the profits of publicly managed companies. Investors can seek to get profit from stock buying in one of two options. Some stocks are known to give timely dividends (a certain portion of money per share of stock a person has). The other way investors can seek to benefit from buying stocks is by selling their stock for a profit at a later stage if the stock price swells from their buying value.
Stock markets also help the government to encourage spending through the tax revenue they get from businesses that are listed and traded on the stock exchange. The government utilizes this revenue to upsurge re-investment and employment volume.
The stock market plays a pivotal role in the economy of a nation in regard to investment and spending. In the absence of stock markets, most countries would not be as advanced as they are.
They help companies raise capital
In the absence of stock markets, companies would have decided to borrow money from the bank for their growth. This would pure onus on the company as they would be required to repay the debt along with interest.
However, in the case of stock markets, businesses enjoy the capability to prepare an initial public offering (IPO) and raise sufficient amounts of cash without worrying about the repayment. You can find the list of upcoming IPO in India on website of every top stock brokers. In addition, publicly traded companies have no responsibility to pay dividends even if they are facing losses.
This raised capital can be used by the companies to grow their operations and fuel jobs in the economy. From a wider economic viewpoint, consumer spending goes up through their investment via top brokers in India, governments seek to benefit from tax incomes, and unemployment levels dip.
Why stock trading is necessary?
There are lots of reasons why firms, funds, banks, traders, and investors buy and sell company stocks:
- Investment Advances
Stock ownership is found to help a business grow. Over a long-term time horizon, the assistances of investing in stocks classically far overshadow those of retaining money in poor-return assets such as cash.
Different types of stock trading can help investors expand their risk across diverse asset categories, economic segments, and topographical places. This tends to amplify the potential for optimistic returns in their stock portfolio.
Some stocks provide earnings in the form of regular dividends, even if the stock has lost its worth. That is income you can keep or reinvest. You can also register votes in company functions.
Stocks trading is practiced by a large number of people on a daily basis where they trade, buy and sell stocks and shares that are in demand. This suppleness also refers that you decide which business to invest in and at what time.
Trading stocks allow investors to get a stake in a company today and tomorrow. Given the specific risk tolerance and time frame, the benefits can be numerous and diverse.
- They help amplify personal wealth
One of the most crucial advantages of the stock market is its ability to help fuel personal wealth in the economy. For a personal investor, the stock market enables an option to invest his income to grab a portion of the companies’ profits.
The revenue they get this way can promote spending in the economy that can have a multiplier effect. The increased spending by people leads to better money investment and employment.
- They help investment in the economy
One of the major promoters of Gross Domestic Product is the investment level in the economy. Governments sometimes come up with economic and financial policies in the economy to encourage higher investment.
The stock market is found to be one of the most leading avenues for individuals to invest money in. In addition, investors are always looking to invest in companies with impressive growth potential.
If the stock market is running well, this not only increases investment from local investors but also invites foreign direct investment as people overseas abroad invest in the local stock exchange.
For example, people in India can invest in the stock exchanges like BSE and NSE which helps increase the GDP of the country’s economy and vice-versa.