![The role of the stock market in the economic system](https://expert-metatrader.com/wp-content/uploads/2021/09/photostudio_1632218908433.png)
The role of the stock market in the economic system
In the previous program, we said that the stock market is a market in which all kinds of assets are traded. Of course, the market we are talking about as stock exchanges is very different from the common markets such as gold, car, carpet and other markets that you are often familiar with. Perhaps the most important differences between the stock market and traditional markets are formality, transparency and strong legal support. This means that, first of all, the stock exchange, unlike traditional markets, is a completely official market and trading in it is done according to specific and systematic rules, regulations and rules.
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The second difference between the stock market and traditional markets is the high transparency of the stock market. This means that when a person decides to buy or sell shares of a company on the stock exchange, he can easily and only by accessing the Internet can access all the information about that company. And after thoroughly reviewing this information to decide whether to buy or sell shares of that company. And this is while traditional markets do not have such transparency.
The third difference between stock exchanges and traditional markets is related to the legal support of stock exchange activists. Due to the great importance of the stock market in the country’s economic system, the legislator has considered the necessary laws, regulations and structures to protect the rights of investors in the stock market. So that investors can invest in this market with the assurance that there will be no incidents such as abuse, fraud and others. An advantage that does not exist in traditional markets.
Leaving aside the differences between the stock market and traditional markets, it is better to mention the role of the stock market and specifically the stock exchange in the society’s economy . We mentioned that due to the high importance of the stock market in the economies of countries, various laws and regulations in the field of stock exchange and protection of investors in this market have been adopted and implemented all over the world. But why is the stock market so important in the economic system of countries?
Suppose a company, after conducting expert studies, has come to the conclusion that by increasing the number of its production lines, it can launch a new product to the market. Naturally, the company’s success in launching a new production line leads to increasing the company’s production, sales and profitability, creating more job opportunities, self-sufficiency in the national arena, and ultimately economic growth and prosperity.
But the company needs capital to set up the production line. So the main question is how the financial capital needed to set up this production line should be provided?
A common way is for company officials to go to the bank and receive banking facilities . This method is usually time consuming and time consuming process and imposes a high cost on the company. Because the company must pay the interest on the facility to the bank if it receives the facility, and the interest rate is usually significant. Therefore, with this method, the company’s risk is greatly increased.
But in addition to this method, there is another method that is financing through the stock exchange . In this way, the company can submit its justification plan for launching a new production line to the stock exchange if it is accepted in the stock exchange. If the stock exchange experts determine that the proposed plan is acceptable in terms of profitability and other plan conditions, it will allow the company to offer and sell new shares to investors in the stock exchange to obtain the financial resources it needs. To launch its projects.
In this way, on the one hand, the company was able to easily finance by sharing others in its own plan, and on the other hand, investors who found the company’s plan profitable were able to buy the company’s shares, albeit in very small quantities, but with Participate in a small and profitable national project. And the result of such an effective partnership will definitely be the growth and prosperity of the country’s economy .
It is necessary to pay attention to this point, because investors in the stock exchange, after reviewing and analyzing the information published by companies, choose the shares of profitable companies with acceptable performance. Thus, the stock market, by creating a competitive environment, allows successful and profitable companies to finance through the sale of shares, and unlike loss-making companies, they are automatically eliminated. To allocate resources optimally and optimally. Which in turn leads to economic prosperity.
That is why countries with more developed stock exchanges have been able to experience more economic growth.
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