What is the stock exchange?
The stock market refers to the needs of the public issuance, purchase, and sale of stocks traded on the stock exchange or over the counter. Stores, also called shares, represent fractional ownership in a company, and business is where investors can buy and sell ownership of these investable assets. An efficiently functioning stock market is essential for economic development as it allows companies quick access to public capital.
Goals of the stock market – capital gains and investments
The stock market has two primary purposes. The first is to provide companies with capital that they can use to fund and grow their business. Suppose a company issues 1 million shares that initially sell for $10 per share. In this case, you’re providing the company with $10 million in capital to grow it’s business (minus fees the company pays to an investment bank to handle the stock offering). By offering shares rather than borrowing the capital needed to expand, the company avoids incurring debt and paying interest on that debt.
The secondary objective of the stock exchange is to allow investors, that is, those who buy shares, to participate in the profits of listed companies. Investors can benefit from buying stocks in two ways. Some companies pay regular dividends (a fixed amount per share held by someone). The other way investors can revenue from buying stocks is to sell their shares for a profit when the stock price rises relative to their purchase price. For example, if an depositor buys shares of a company at $10 per share and the stock price then increases to $15 per share, the investor can earn 50% of their investment by selling their shares.
The overall act of the stock market is typically tracked and reflected in the performance of various stock market indices. Stock indices consist of a selection of stocks that are designed to reflect the overall performance of the stock. Stock indices themselves are traded in the form of options and futures, which are also traded on regulated exchanges.
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