Share market can be treated as a huge auction where bidding and selling of shares is taking place.
It is a platform that put investor, corporate firms and financial intermediaries together.
Understanding a share market is not so complicated as long as you know the roles played by these three major parties well.
Read on to find out more about investor, corporate firms and financial intermediaries.
Corporate firms: They play the role of net borrowers in the market.
Corporate firms issue shares to the investor because they want to raise the capital to pay for investment in plant, equipment or other business sectors and daily expenditures.
Part of the income raise by these investment activities will go back to the investors.
After subtracting the profits earned from those real assets by interest payment to investors, the net revenue of these corporate firms can be estimated.
With the existence of share market, issuing share and raising capital are made easier and more convenience.
Investors: Investors refer to individuals, like you and me, who are the net savers in share market.
The ultimate purpose for investor to take part in share market is to make profit from share trading.
When the prices of share rise to that above its initial value, the investor will sell it so that the spread of selling price and buying price brings profits.
Financial intermediaries: Big amount of return comes from equivalent amount of investment.
Therefore, sometimes it is impossible for individual investor to earn desired amount of profits from investment due to the limited amount of money invested.
Moreover, due to this factor, small investors would not be able to diversify their portfolios.
Because of these reasons, financial intermediaries have evolved to bring money lenders and borrowers together.