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What are the benefits of the stock market?

Benefits to the owner(s)

Stock markets allow owners to develop ideas and expand their business without risking or needing to raise (or borrow) the money all by themselves. Therefore, if the business fails, the original owner(s) have not lost all of their assets.

Benefits to investors

Stock markets allow investors with capital (money) to become partial owners in companies of their choice. In other words, you can become financially successful without having to invent a new product.

Benefits to the economy as a whole

Stock markets encourage business expansion by making it easier (and less risky) for owners to get new products and services to as many people as possible. Just imagine how many new companies would not have enough money to get started. Furthermore, when stock markets operate as they should, companies with useful products that are run effectively will receive more investment dollars than companies without these traits. This is the economic story of survival of the fittest where only the best businesses will continue to receive investors' money. In this way, companies that are well-run and have something to offer the public will continue to receive the support they need; while others must either adapt or become extinct.

Summary: What is the stock market? What businesses can be a part of it?

The stock market is a marketplace for people to buy and sell shares of stock, representing ownership, in publicly traded companies. Brokers link potential buyers and sellers who agree to transactions at mutually agreed upon prices. Just as a supermarket's function is to provide a place for buyers and sellers of food, the role of the stock market is to link companies in need of investment dollars with potential investors looking to place their money in successful businesses. Both of these markets have their prices determined by the laws of supply and demand. However, unlike the supermarket, the stock market allows for possible large fluctuations in price in a short time period because buyers and sellers are linked in individual transactions.

Any business that meets requirements and agrees to the rules and regulations established by the Securities and Exchange Commission for publicly traded companies may offer shares to the public in the stock market.

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