Are you troubled with the purposes of the stock market? Before concluding the important aspects, we should get an idea about the stock market. The stock market also is known as the equity market is a collection of the public market that exists for buying, selling, and issuing of stock which takes place on a stock exchange or over-the-counter.
The stock exchange serves two important functions. The first one is to provide a means to companies to gather funds by issuing company shares for operations or expansion of a business. While the second purpose gives a way for investors to share the profits of publicly traded companies by buying the issued shares of companies.
Equities represent the fractional ownership of a company and the stock market is a platform to trade ownership of public company investible assets.
The efficient working of the stock market is also being considered a critical aspect of economic development, due to the easy ability to deriving capital from the public. For more on the stock market – Click here.
Purpose of the Stock Market – Capital and Investment Income?
The stock market functioning assists two valuable aspects. These two aspects are the reason for the existence of the stock market as a whole. It consists of two groups whose aim varies from another group but has a direct connection with each other. These groups are distinct through:
Let’s understand more about these two important aspects of purpose in brief.
- Capital Income: The first purpose is to avail money in terms of capital to the companies for the expansion and growth of a business.
For instance, if a company issues an IPO of one million shares of stock for $10 per share, that will generate the company capital of $10 Million which can be used for the growth of a business ( Ofcourse deducting the service fees that has to pay to the bank for managing the stocks). Offering stock to get capital instead of borrowing the capital for growth helps to avoid paying the interest on the debt.
- Investment Income: The secondary motive of the stock market is to give an opportunity for investors to get a share in the profits of the publicly-traded company by purchasing stocks of the company.
Investors can generate profits by purchasing stocks in two ways. By getting regular dividends that you can get depending upon the number of shares someone owns of the company. Another method is to sell the shares when the prices of the share are comparatively high than to the price it was bought. For instance, an investor bought shares of a company for a price of $10 per share, and fortunately, the price of the share rises to $15 per share, here the investor can get a profit of 50% by selling out the shares.