Capital’s Role in Growing the U.S. Economy 

In the context of the securities industry, capital describes the funding needed by businesses to help them grow and expand. The securities industry helps raise these funds for businesses by selling investment tools (such as stocks and bonds) to investors. Capital markets refer to the marketplace in which capital-raising transactions take place and these financial tools are traded.

The securities industry performs two unique functions that are vital to economic development. First, it serves as an intermediary to match those who have capital with those who seek it. Those who seek capital use it to grow and expand their businesses, in turn creating jobs and providing other benefits to the U.S. economy. Second, the industry advises clients and investors on how to manage their capital investments—helping them raise their living standards by reaching financial goals related to housing, education, retirement, and other important areas.

Securities firms also bring liquidity into the market through their role as market-makers. Liquidity matters because it lets investors convert assets into cash easily without creating volatility (a measure of stability) in the market. This efficiency in turn allows corporations and government agencies to readily raise long-term capital at fair prices. A high level of liquidity is one foundation of an effective, efficient market.

Continue reading about Industry Basics: How Liquidity Affects Market Efficiency.