The share market and the economy have been the buzzing topics for the last few years. Observing the market index decrease by more than 30% in a month, a question that can arise is how we can move on to understand more about the stock market and how it can impact the economy.
In this guide, we will discuss the same and get familiar with whether the economy and the stock market are the same or not. Additionally, we will also learn online trading. So, let us get started.
A stock is a type of security showing an individual’s company ownership. In contrast, a stock market is where an investor can facilitate buying and selling ownership of such assets. Trading on a stock in a public exchange is important for the economy to flourish since it enables the companies to generate capital via public funding, repay debts and other obligations, or even grow their business. To understand it in a better way you can learn stock investing online through various platforms available.
The share market exists for two primary reasons, the first being that it allows a company to raise capital that can be utilized for expanding and booming business operations. If any company goes for issuance of one crore shares that can be sold at Rs. 4 per share, this lets them generate four crore for the business.
Companies find it a good way to generate capital in this way for them to avoid incurring debts and also paying off interest charges. The share market also allows investors to get a share in the company’s gains and the newcomers to learn trading online by providing them various learning platforms.
One method to make this possible is through purchasing the stocks and getting dividends regularly on their overall value – an investor gets to earn a specific amount of money for every share they own.
Another method is selling off the stock to buyers for a certain amount in the form of profit when the share price increases. If an investor opts to purchase a stock for Rs. 20 and the price gradually goes up to 25, the investor can sell the share and gain a profit of 25%.
The rise and fall in share prices can determine various aspects of the economy, like consumer and business confidence, which can create a favorable or unfavorable economic impact. Conversely, various economic factors can also affect the share market.
The fluctuations in the individual price of shares make the share market volatile. As the share prices go up or down, the volatility factor can positively or negatively impact customers and businesses.
In case of a favorable bull run or an increase in the stock market’s price, the confidence in the economy of the users increases. People’s spending patterns also rise since they become optimistic regarding the market. Many investors also enter the market, allowing better economic growth in the country.
During a bear run, there is a negative wealth impact, which leads to uncertainty among consumers and a decrease in the value of their investments.
Conclusion:
Unlike the popular notion, the share market and the economy are separate concepts. The economy depends on various factors, and the share market is impacted only by one factor: the demand and supply of shares.