Why Stock Market Exists

A stock Market Exists because of two reasons:


1. It provides an market place where companies can raise much needed funds for their operations, companies can issue shares (and other more complex securities) to investors in exchange for money.
2 It creates an betting place where investors can buy and sell those shares at current prices as determined by other investors in the market.

When a company wants to set up a new business or expand its existing business, it can raise the necessary capital either by borrowing money or issuing shares of stock to investors. The investors become stockholders (or “shareholders”) in the company, which gives them ownership and the opportunity to share in the company's profits and growth. If the company struggles, however, investors also have the ability lose equity.

Before a company can publicly sell shares to be traded, it must first be listed on an exchange. To become listed, a company must be large enough for there to be a market in its shares, and it must agree to abide by the listing rules of the exchange on which it is listed. Among other requirements, the company must keep the market informed of its activities, and regularly report its profits and other financial information.

Once a company is listed and able to issue shares to the public, the shares can then be sold to other investors in the stock market. Individuals can buy shares directly through a stock brokerage firm, or they can place their money with a fund manager or financial institution that will decide where and how to invest the money.

When an investor buys or sells stock, the sale takes place on the electronic trading system. The brokerage firm enters orders for buying and selling in the investor's behalf. If the trade was made online, depending on the brokerage, the order may be sent directly to the exchanges by way of the brokerage.

Investors decide when to buy and sell shares based on the forces of supply and demand, and how they feel about the stock's price. Because private investors control a large percentage of the total funds that are invested in the market, they play an important role in the supply and demand process. The market provides an opportunity for investors to purchase equity in a company by purchasing stocks, and therefore benefit from the wealth-creating activities of companies. When you buy goods or services from listed companies, you are contributing to their growth and providing an opportunity for higher profits, which enables them to pay higher dividends to shareholders.

Wealth for those who invest in a company is created from the rise in stock price or dividends paid by the company. The benefit to the company is that additional capital is raised through the sale of shares.