A stock market is a major component of an economy and has far-reaching effects. Even if much of a society's individuals are not directly involved with the stock market, they are still affected by its advantages and disadvantages.

And for some participants, the stock market plays a pivotal role in their lives. The most notable advantage of the stock market is that it provides operating capital to corporations.

Investors purchase shares of ownership in a company, and this revenue can lead to a large influx of money for the corporation. The first sale of stock to the public by a private company is called an "initial public offering," or IPO, and is often the only way a company can expand or embark on particularly ambitious projects.

An investor may sell shares that increase in value for a profit called capital gains. The stock market has a history of offering consistent long-term gains over time.

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The average annual returns, adjusted for inflation, are approximately seven percent. However the returns in any given year may be significantly above or below this average.

While the stock market provides long-term success in most cases, short-term fluctuations in market conditions can lead to dramatic losses. This is a serious disadvantage of the stock markets. Unlike a cash-based investment, such as a savings account, which offers a steady and predictable profit, stock markets are highly volatile. Trading in the stock market is a considerable challenge for many of its beginning participants.

The possibilities for vast profits invite many to try stock trading. However, active trading is exceptionally difficult and stressful work, and this is a disadvantage of the stock market. Many lose money in the process of learning. This loss is coupled with the psychological effects of considerable frustration and disappointment at the experience.

One advantage of the stock market is the industry it has created with a wide variety of jobs. Many companies and professions exist solely because of the stock market.

These include brokers, financial analysts, investment banks, investment enterprise soa adoption strategies and finance education institutions.

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James Highland started writing professionally in He has written for the New Best european options brokers Institute of Finance and Chron.

He has an extensive background in financial investing and has taught computer programming drawbacks of stock market for two New York companies.

He has a Bachelor of Arts in film production from Indiana University. The database based on Word Net is a lexical database for the English Language. Classroom College Finance Lifestyle Technology Tests Vocabulary. There are both advantages and disadvantages of the stock market. Corporate Capital The most notable advantage of the stock market is that it provides operating capital to corporations.

Capital Gains An investor may sell shares that increase in value for a profit called capital gains. Volatility While the stock market provides long-term success in most cases, short-term fluctuations in market conditions can lead to dramatic losses. Stress Trading in the stock market is a considerable challenge for many of its beginning participants. Jobs One advantage of the stock market is the industry it has created with a wide variety of jobs.

Initial Public Offering - IPO Money Chimp: Compound Annual Growth Rate Annualized Return Washington Post: Advantages and Disadvantages of Trading Markets Greek Shares: Jobs, Employment and Career Opportunities.

About the Author James Highland started writing professionally in Photo Credits stock market analysis screenshot image by.

Advantages & Disadvantages of Stock Markets | Synonym

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