Can anybody explain the stock market to me?

How does it work? What does it take to buy stock?

Buying stocks and funds are buying a piece of the company. If the company makes a profit the value of the company increases and the shares become more valuable.

If the company loses money all the time the value of the company and the stock shares go down and you lose money.

Stock brokers act as a clearing house for the buying and selling of shares. They get a commission for this. You buy and sell your shares thru them.

If you go long a stock, you want it to go up. Buy low sell high.

If you short a stock, you want to initially sell it high, and buy it back later at a lower price and pocket the difference.

Then there's options, but this is the subject of another question.

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Here is a link on investing for beginners:
http://www.best-stock-trading-systems.com/stock_market_for_dummies.html

That is a very broad question but I'll do my best...

The 'stock market' is an exchange were individuals or entities can buy or sell securities. Securities can be stocks bonds, commodities, futures mutual funds, etc.

Lets take on of the above ... stock ... what is stock? It is ownership in a corporation. Corporations, like Disney, Compaq ... YAHOO ... need money to advance their cause, in Disney's case, their cause is entertainment. What do they offer - theme parks for one - how did disney build them? They paid a group of people to design and build the parks. where did they get money to pay for this? By issuing stock. Disney approaches an underwriter - someone who will help them prepare and issuse stock - they then file their papers with the SEC and they approve a certain amount of shares to be made available to the public.

Now Disney - through their underwriter - like a sales person - has the ability to sell their stock. They sell their stock on an exchange - a trading ground for companies that are trying to to the same thing - think of it like a farmers market, only they're selling stock not tomatos. Anyway there are many exchanges, the Ameican exchange, the Nasdaq, the NYSE, thye all have listing requirements - how big is your company, how many $$ do you have in assets, etc based on your answer you'd be allowed to trade on a particular exchange.

(Why trade on an exchange? Think of the farmers market again, you go to the exchange to sell your shares b/c that is where everyone else is doing it...you dont have to do it there but that is how you get the best exposure to potential buyers.)

Buyers - like you and me access the exchange through brokers like etrade and td waterhouse. we tell the broker how many shares we want and how much we are willing to pay for them, and the broker attempts to fill our order. They make money by charging a commission or sales fee on the order. If the order is filled the broker gets a commission and the shares change hands. Oddly Disney only makes money through the Initial Public Offering that is when they take their shares public selling them to anyone willing to buy them.

Meanwile, Disney now has the ability to raise capital to pursue their projects, they collect money by selling stock ... but at a price, stock = ownership in the company and gives the buyer an opportunity to participate in the decision making process of the company. Disney attempts to pursuade the decision making of its owners by paying a quarterly dividend which keeps the owners happy, or by explaining that a particular project will increase their net income, making their stock more attractive to people who do not yet own it, making them willing to pay a higher price to own it ----- capital appreciation.

That is just one thing that buyers and sellers can do in a stock market, but I think it's a good starting point.

Please read books before you take the plunge. Attend seminars and talk to brokers and company execs. You are not the only person who doesn't know about tstocks but thinks that the streets are paved with gold.

They aren't so please spend a few pounds/dollars/schekels on education and travel before you buy stocks as otherwise the chances are you will fail initially and form the opinion that it is all bad. Shares aren't all bad but there are good times to get in and good times to just watch. "There are no risky investments, there are only risky investors", don't take risks that reading and talking will mitigate for you.

Check out "The Nightly Business Report" series on National Public TV (go to their website). They have a great DVD or video that totally explains the Stock Market in simple to understand terms. It cost, but it is well, well worth it.

Open a brokerage account at Zecco and drop me a line.

Are you serious? There are many resources available to you on the 'net, the main place to start would be to go to the Stock Exchange website for your jurisdiction. For example, in Australia it would be www.asx.com.au and for the US you could check out www.nyse.com.

The Stock Exchange is a vehicle for companies to raise capital. They need money to fund their operations and investors supply this money. The exchange is a market where people can trade their shares in companies - the amount of money they have invested in company is translated into "shares". Companies that are successful - make good profits - become sought after shares and therefore their price rises. That is because the share is a right to a 'share' of the profits that the company makes (because in effect the share holder is a part owner of the company).

But remember that like all markets, the price that shares trade at is based on the supply and demand for that particular company. And these things are driven by human emotion and a barrage of information about how the economy, that company, their sector and other stuff is being affected by world and local events.

As David Graham says, "in the short term the market is a voting machine, in the long term it is a weighing machine". That is to say that in the short term, prices are affected by emotional factors - someone thinks the stock is on fire or not - in the long term, the performance of the company will reflect in the share price.

Hope that helps. Read as much as you can. Visit your local exchange site and read their educational material. Read the financial press. Try out with small amounts first before committing real money.

Regards,
Wazza

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