Quote:
Originally Posted by Beingist  Anyway, how else one can make a profit, without offering anything to the general public, is by buying (at a low price) and selling stocks (at a high price). This is the very nature of the question originally posed--how stock trading benefits society.
..... I'm still working on understanding what liquidity is (part of the reason for this, is the accounting definition I have stuck in my head). Once I understand that, I might be better able to understand how that benefits anyone.
That said, what is the opposite of market liquidity, then--volitility? |
The opposite of market liquidity is illiquidity.
For example, let us say that you have a house worth about $1,000,000. I have listed shares worth about $1,000,000.
Although our assets are similar in value, mine are more liquid. Generally, it takes a few clicks on my computer to sell my shares. The money comes in two or three days later.
As for your house, although it definitely has value, you may take months to find a willing buyer. This is because your market is less liquid than mine.
You will have even less liquidity, if you owned a precious painting valued at $1,000,000. Because it is even harder to find a willing buyer.
-------------------
The value of stock trading to society is that trading creates liquidity in markets. Without liquidity in stock markets, people would be much less willing to invest in shares (because they do not know who they can sell their shares to, if they later wish to sell).
If people are not willing to invest in shares, then companies will find it very difficult to raise money from the public. If they cannot raise such money, then they lose one important avenue of raising money. If they lose that avenue, they will find it much harder to finance their business operations, whether they are in agriculture, or manufacturing, or retail, or pharmaceuticals or whatever else.