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Why is stock market important for any country?

Tulika Tandon

What is the stock market?

The stock market is the collection of markets and exchanges where regular buying, selling and issuance of public companies occurs. 

Examples: New York Stock exchange, Nasdaq, Chicago Board Options Exchange etc. 

It is called the stock market but it is primarily known for trading stocks/equities or various financial securities like exchange traded funds, corporate bonds, derivatives based on stocks etc are also traded in this market. 

What is a stock?

A stock or a share is a financial instrument representing the ownership of any company or corporation. It represents the claim on its assets and earnings proportionately. 

For instance, an individual or entity that owns 100,000 shares of a company with one million outstanding shares would have a 10% ownership stake in it.

Stock ownership implies that the shareholder owns a slice of the company equal to the number of shares held as a proportion of the company's total outstanding shares.

Why do companies release shares?

To grow at a pace requires access to a massive amount of capital by any company. It means  for the transition from an idea of an entrepreneur's brain to an operating company, requires capital which is raised generally by releasing shares. 

What are Listing Shares?

When a company is established, it would require access to very large amounts of capital than it could get from ongoing operations or any bank loan.

It also does this by selling shares to the public through an initial public offering (IPO). 

This changes the status of the company from a private firm whose shares are held by a few shareholders to a publicly traded company whose shares would be held by various members of the general public. 

The IPO also offers early investors in the company an opportunity to cash out part of their stake, often reaping very handsome rewards in the process.

Why is the stock market a necessity?

Stock markets provide a secure and regulated environment where people/traders can transact in shares and other eligible financial instruments with confidence with zero- to low-operational risk. 

It operates under the defined rules as stated by the regulator. These markets act as primary markets and as secondary markets.

Stock markets enable companies to be traded publicly and raise capital. They promote investment. The raising of capital allows companies to grow their businesses, expand operations and create jobs in the economy. The transfer of capital and ownership is traded in a regulated, secure environment.

This investment is the major driver for economic trade, growth and prosperity.

For investors, stock markets provide a way to invest money in order to potentially earn a share of the company’s profits (knowing that the risk of losses exists too).

 Active investors and traders can easily buy and sell their securities due to the abundant liquidity in most major stock markets.

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