A world without the stock exchange might appear very different. Things could be better in some ways while getting worse in others. You may need to learn how the stock market has influenced your life, financial prospects, and economy.
Why do stock markets exist?
Stock markets exist to serve the wider economy.
- It allows individuals to profit from their investments in the stock market and allows businesses to spread their risks and reap large rewards.
- Helps companies raise capital
- In terms of spending and investment, the stock market plays an important role in a country’s economy. Many countries would not be as developed as they are today if stock markets did not exist.
- Serves as an indicator of the state of the economy
- Helps create personal wealth
- It also allows the government to increase spending by collecting taxes from corporations that trade on the stock exchange. The revenue is used by the government to increase reinvestment and employment capacity.
- Effects non-investors in the economy
- In addition, it has assisted individuals in becoming wealthy and has raised the overall standard of living in many economies.
- Increase investment in the economy
A world without stock markets?
- You’d Have to Buy and Sell Your Own Stock
When you purchase a share of stock, you are purchasing a very small portion of the underlying business. Therefore, when the company is profitable, which is usually the case in a strong economy, the value of your shares should rise because of the existence of the stock market.
Without a thriving stock market, each person seeking to purchase an interest in a company may have to deal directly with that company, requiring the services of an attorney and a banker, among other professionals. At the very least, transaction costs would be significantly higher than in today’s liquid and the accessible stock market.
- Business Funding Might Not Be Easy
Many businesses have only been able to expand because of the funds raised by selling stock to the general public. In fact, many of the country’s largest and most important corporations advanced past the startup stage by raising millions during the initial public offering (IPO) stage of their lifecycle.
As a result, when companies need to raise more capital in the future, the public markets provide an easy way for them to do so. In addition, with publicly traded shares, other companies can easily merge with or acquire businesses, providing an exit strategy if the company is no longer viable on its own.
- Business Growth Would Be Tougher
Following the initial sale of a company’s original shares by its owners, the stock is freely traded on public exchanges. Shareholders then transition from being investors—possibly involved in the company’s initial public offering (IPO)—to speculators betting that the shares will rise in value.
Buying and selling shares on the market after the initial sale does not provide any funds to the underlying corporation.
Of course, the more valuable the shares, the more valuable the company is, and vice versa. As a result, the higher the value of a company’s stock, the easier it is to raise more capital.
- Stock market drawbacks
The most serious disadvantage of the stock market is that it increases income inequality. Individuals who own stocks typically see their net worth increase when the major indexes rise. Those not invested in the stock market are out of luck in this case.
Investing, of course, can work both ways. For example, consider how much money was lost in a stock market crash—people who were not shareholders in any company were immune to the risk.
As a result, investors’ worth increases, especially since the stock market has historically grown over time. As a result, the divide between the haves and the have-nots widens.
A country without a stock exchange may see more equal income distribution between the upper and middle classes. However, the overall economy may not be as strong, and many of our major corporations may cease to exist, at least in their current form.