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How stock markets benefit both the economy and the investors.

How stock markets benefit both the economy and the investors.

Stock markets like the Zimbabwe Stock Exchange and the Financial Securities Exchange provide a trading platform where shares of publicly held companies are sold and bought.

Stock exchanges are an invaluable source of capital for businesses. As such, the behavior of a country’s stock markets can serve as a reliable indicator of national economic performance. So, how exactly does a stock market benefit an economy?

Without stock markets, businesses would largely resort to borrowing huge loans – which must be repaid with interest – from banks or individuals with well-oiled pockets.

Fortunately, businesses in both the developed and developing world can issue shares to the public, raising vast amounts of cash that doesn’t come along with a repayment burden
(public companies are under no obligation to pay dividends, especially when they incur losses).

When businesses have access to such capital, they can easily expand their operations and create more job opportunities. From a national perspective, this will lower unemployment levels, and enable a government to earn move revenue from business taxes.

Investments, whether in the financial markets or product markets (agriculture, real estate, manufacturing etc.), are a key driver for economic trade, growth and prosperity. As
governments focus on creating policies –like lowering interest rates – that promote a culture of investment, stock markets are gaining prominence as a top destination for
investors.

Increasingly, more people are looking to invest in companies with growth potential. You don’t have to look further than Warren Buffet, one of the richest men of our
times, to know that stocks create billionaires.

In addition, stock exchanges with high market values can attract foreign companies. For example, Manchester United left the LSE in 2005 and listed its shares in the NYSE in 2012,
largely because of the latter’s ability to attract investors. When this happens, investors in the US have an even wider variety of businesses to invest in.

Stock markets provide a trading platform for governments too.

Sometimes a local, state or national government may need more money to develop a community housing estate, build a water treatment plant or initiate any other public projects.

Instead of increasing taxes to raise the required revenue, it can issue bonds through the stock market.

When investors buy these bonds, the government is able to raise the money it needs to launch various projects that can ease the cost of living or even create jobs for locals. In the long run, this improves the economy.

For investors, stock markets are huge auction houses. Every day, investors are buying and selling their shares. This makes securities a liquid investment. When investors want to
exit an investment, it is quick and easy to find a buyer.

Other assets are much more difficult to sell. If you invested in an investment property, it could take time to find a buyer and get your money out. With securities, investors can find a buyer the very day. C-TRADE comes handy for investors who wish to exit as they are given the option of exiting whenever they want to.

Given that the price of securities fluctuates up and down depending on the performance of the companies as well as other developments in the economy there is a real opportunity
for investors to make a profit through buying and selling securities in the secondary market.

C-TRADE further enables investors to keep in touch with their investments remotely so they can make quick decisions in certain market conditions which needs to be acted on urgently.

The general principle is very simple; one should buy a security when the price is low and sell the security when the price is high.

Outside capital growth, investors can also receive income from their investment in the form of a dividend. While not all securities offer dividends, there are those that do deliver periodical payments to investors.

These payments arrive even if the stock has lost value and represent income on top of any profits that come from eventually selling the stock. Investors can hold on to their shares whilst benefiting from dividends.

The post How stock markets benefit both the economy and the investors. appeared first on NewsDay Zimbabwe.

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