Why Do We Need a Stock Market?

Before electronic trading, the stock market provided even more jobs.

new york stock exchange image by Gary from Fotolia.com

The stock market was born out of innovation in 1792, and investment professionals have continued to innovate ever since. Some turn to the markets as a career while others seek to discover fortunes to pass on to future generations. While the stock market has not always generated the highest returns in the markets -- and in fact has produced its share of losses -- it continues to attract trillions of dollars to various equity investment products. It's an international marketplace that has withstood economic downturns and evolved through market shifts but has never proved to be unnecessary.

Job Creation

Wall Street employs hundreds of thousands of people, based on U.S. Bureau of Labor Statistics cited in an August 2010 article in "The Wall Street Journal." If the stock market were to disappear, so, too, would those many jobs in the financial services industry. Companies that are able to expand as a direct result of the money raised in the stock market perpetuate the trend by needing to hire more workers.

Wealth Creation

The stock market gives investors an opportunity to share in the profits of major corporations. While stocks can be risky, they also provide small and large investors the opportunity to gain wealth. Given the opportunistic trading strategies that sophisticated investors use, professional investors can generate wealth even through changing market cycles. For instance, some professional money managers can earn a return even when stocks lose value. The average investor saving for retirement can generally rely on long-term profits from stable companies and income generated from dividend stocks.

Capitalizing Companies

Corporations rely on the equity capital markets to raise money. They use this capital to help with growth initiatives as well as to reach major milestones, such as acquiring another business or expanding products or services. Corporate expansions can support domestic and international trade and also strengthen regional economies in part by stimulating commerce. Without a stock market, many companies would become cash constrained because there would be such a high demand on private capital and bank lending.

Historical Tradition

The stock market is a historical part of American culture that dates back to the 18th century. It began when a group of two dozen stockbrokers and store owners signed an agreement under a buttonwood tree on Wall Street in lower Manhattan -- a contract that came to be known as the "buttonwood agreement," according to the Library of Congress. Fewer than a half-dozen stocks were traded on that early New York Stock Exchange. By 2012, nearly 3,000 companies were listed on the exchange.