The most important function of a stock market is to facilitate and organize locations where investors and companies can gather to exchange capital for an ownership stake. Exchanges often serve as an intermediary between the two parties, acting as a clearinghouse for some transactions.

The stock market is often used as the primary barometer of economic activity. The stock prices of companies serve to reflect the earnings and growth prospects of the largest companies in the world. Performance by companies and markets in general are considered forward looking as investors supply and extract capital in anticipation of future expectations.

Stock market participants thus act as drivers of economic activity in the financial system, providing capital to companies they believe have strong earnings potential.

Connection to the Financial System - Article By Better Trades