The Importance of the Stock Market

The Importance of the Stock Market

The Importance of the Stock Market

The combined activity of stock markets around the world constitutes a major source of capital exchange and flow of international finance.

There are stock exchanges throughout most parts of the world. Some of the largest ones, at least in terms of the total value of shares traded, include the London Stock Exchange (LSE), New York Stock Exchange (NYSE), Tokyo Stock Exchange (TSE) and the Hong Kong Stock Exchange (HKSE). A company's shares are valued by the combined activity of the stock market. Prices rise or fall depending on what traders are willing to pay for a particular company's shares.

Raising Capital

From a company's point of view, one of the main benefits of having its shares traded on a stock exchange is that it can help to raise capital. Private companies often enter the stock market in order to attract outside investment.

This investment can boost a company's ability to grow and become more competitive, as it can use the funds to develop a new product range, expand its presence in a particular market or strive to attract a higher calibre of staff.

Trading Profit & Dividends

From the trader's point of view, investing in a company can lead to profits/losses, by the selling of shares at a higher/lower value than they were initially bought for. Profits can also arise from dividend payouts. Although they are not guaranteed, dividends are regular payouts that a company distributes to its investors, typically following its quarterly, half-yearly or yearly earnings announcements. Note that if you spread bet on shares then you can speculate on a share price to fall.

Stock exchanges attract an array of different types of trader. There are relatively small individual investors, wealthy investors, large-scale corporations and hedge funds as well as banks and pension funds. The exact list will vary depending on the stock in question.

Disintermediation

Disintermediation in the stock market has helped improve trading speeds. Disintermediation is typically the removal of an intermediary from a transaction. By removing intermediaries, such as brokers, individual investors can trade the markets at far greater speeds and often with lower costs. An example of this is the spread betting companies. By trading online and without any brokers, spread bettors can trade quickly and not incur typical brokers' fees.

Financial spread betting involves a high level of risk to your trading capital and you may lose more than your stake. Ensure that it matches your investment needs as it might not be suitable for all investors. Make sure that you only speculate with money you can afford to lose. Before trading, ensure you fully appreciate the risks that are involved and seek independent advice if appropriate.

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