The Stock Market seems like a complicated beast.
It’s a place where it seems like money is made or lost from nothing.
What’s strange is that there is actually nothing physical that happens in the stock
market.
When a stock gains or loses value nothing visible is happening – but the effect of
such a change in valuation can have a great impact on the world.
Every single day at the New York Stock Exchange over $169 billion dollars’ worth of securities
are traded.
This is only one of the stock exchanges around the world, not to mention all the other kind
of exchanges that exist as well.
How though does such a market work.
Just like any market, the stock market involves buying and selling.
However, unlike the farmers market where you are buying and selling actual goods, in the
stock market something called securities are being bought and sold.
Securities are basically financial assets like stocks and bonds.
When you buy a security like a stock you are actually purchasing part of
the company that that stock is part of.
In the old days you would get an actual piece of paper that shows you how much you own.
These days however, all that information is digital.
So for example let’s say you want to invest your money in Google.
One way of doing that is to buy a share of Google stock.
By buying that share you are purchasing a part of Google.
You can think of it as being a part owner of the company – whether you own one share
or multiple shares.
When you want to sell a security for example, you have to find a buyer.
You would do this through a registered stock broker.
These guys take your stock and look for a buyer who is willing to buy your stock at
a certain price.
When they find another person willing to buy they sell your stock.
They then charge you a fee for the transaction.
The same basic operation happens when you want to buy a stock.
Millions of transactions like these happen every day all around the world.
This is why the prices of stocks go up and down.
The price of a stock generally goes down because sellers are willing to sell at a lower and
lower price or when a buyer is only willing to buy at lower and lower prices.
This could happen when there is bad news about the company or the market as a whole.
People get scared and try to protect their losses by selling their stocks.
The price of a stock goes up when buyers become willing to buy stocks at higher and higher
prices – pushing the price up.
That’s the basics of the stock market.
Money is made from the speculation of money.
It’s that simple.