What Are The Advantages And Disadvantages Of Capital Market?


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James Kent answered
Capital markets, commonly found in the form of stock markets, have several advantages and disadvantages. One of the obvious benefits is that both governments and normal businesses can secure long-term investments that allow for ambitious projects to take place, with goods and services provided that wouldn’t have been possible without capital markets. Unfortunately, cutting-edge research and development in many sectors can only take place once investment has been gained through floatation on the stock market.

The resulting advantages include that innovation is driven forward in a free, capitalist economy, with investors receiving dividends from successful ventures. This money can then be used in other projects that an investor might be passionate and enthusiastic about.

The disadvantages lie in the risks of business, showcased perfectly during the credit crunch and in the various stock market crashes that have taken place in recent decades. There is a lot of risk for people who decide to pursue a career in investing on capital markets, and as the businesses being invested in are accountable for their performance, there is also an immense pressure to deliver goods. Failing to meet targets can result in the premature exit of many people who could have been instrumental to a business’ future success. Because of this, entry into capital markets needs to be carefully timed for maximum impact.

Volatility is another issue - and with long-term investments, there can be no guaranteeing how stable a business opportunity would be in a few years time. After all, who could have foreseen the banking crisis and the troubles in the housing market in continental Europe?

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