The stock exchange gives people confidence to buy new shares issued by companies since they know there is an organised market for their resale. The stock exchange allows institutions collecting money for small investors such as trade unions, insurance and pension funds to make large purchases of shares in UK companies. Merchant banks specialise in lending directly to firms, and in giving advice to companies involved in takeover deals. Discount houses borrow money from commercial banks and buy treasury bills. Finance houses specialise in leasing and hire purchase agreements.
Pension funds collect contributions which are then used to buy stocks and shares.
Unit trusts allow small investors to buy a spread of shares in different companies. The money raised from selling units is used to buy stocks and shares in a large number of companies. Units can only be bought and sold from the trust. Insurance companies collect premiums from policy holders. Some of this money is used to buy stocks and shares.