Why do capitalism and stock exchanges even exist?
If you think about what stocks are and how they work, it should be clear that an economic system without stock exchanges and stocks would have a very difficult time.
Companies that need money would always have to go to a bank and apply for a loan, which might slow down the process a bit, might not even let many companies come into existence and so many ideas and innovations would not have a chance to establish themselves.
Company shares / stocks
An entrepreneur wants to start or expand a business and needs capital.
He divides the value of the company into shares and offers these company shares for purchase.
A company can also issue new shares at any time and thus collect required capital.
The buyers of the shares can then benefit from the future success of the company or lose if the company does not deliver the expected economic performance.
If a share owner is dissatisfied or does not believe in the future of the company, he can also offer his shares for sale again.
The majority owners or directors of a public company can decide how the capital generated is used.
For example, the capital could be used for new product developments or machines, or the company buys back its own shares, or parts of the capital are returned to the shareholders, e.g. in the form of a dividend distribution.
Stock exchanges are therefore the engine and fuel of an innovative and self-regulating economic system.
When you buy stocks you support this system and you can either benefit from it or lose out on an unfortunate or poorly researched choice.
Capital is made available to a company and thus supports its further development and sale of its products and services.
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