How Does The Stock Market Work

Wanting to know how the Stock Market Works?

In order to raise capital, companies go "public" with an offering to sell shares of stock in their company for a set price. The price and number of shares are determined prior to their IPO (initial public offering) and the company who is selling their shares receives that money raised in the IPO (number of shares x price per share less underwriting fees). These shares are then sold and traded on an exchange such as the NYSE (New York Stock Exchange) or NASDAQ. Investors then use these Exchanges to buy and sell stock in companies they are interested in.

When investors buy shares of a stock, it takes the shares away from the amount available to other investors so the price goes up. It is a similar concept as the economic model of supply and demand, in that the price goes up as supply gets smaller and the price goes down if there is more supply. So as more and more people sell their stock in a company, the stock price goes down. If there are more buyers than sellers in a specific stock, that company’s stock price will go up. Click here to learn more about the basics of the stock markets.

Getting Started with Trading Stocks

To begin trading stocks, you must first open and fund an investment account with a brokerage firm. Thanks to advances in technology, you can now setup an online account and use the internet to start trading stocks within a couple of days, sometimes even within 24 hours. Once you have opened your account and it has been funded, you can then begin trading stocks.

Stock Market Education

It’s important to understand that trading stocks is not a get-rich-quick scheme. Taking control of your finances will require some work building your knowledge and experience. However, the rewards of your newly earned stock market education will far outweigh the effort required and you will have developed knowledge that will help you throughout your life. And with the internet, you have literally thousands of valuable resources, from books to video at your disposal. We suggest you begin by visiting the following topics to learn more about each subject: