How does stocks really work.?

How do stocks really work, do I basiclly invest in a stock and then sell it to someone.

The stock market is driven by supply and demand. The number of shares of stock dictates the supply and the number of shares that investors want to buy dictates the demand. It's important to understand the for every share that is purchased, there is someone on the other end selling that share (or vice versa). The stock market is really just a big, automated superstore where everyone goes to buy and sell their stock. The main players in the stock market are the exchanges. Exchanges are where the sellers are matched with buyers to both facilitate trading and to help set the price of the shares. The primary exchanges are the Nasdaq, the New York Stock Exchange (NYSE), all of the ECNs (electronic communication networks) and a few other regional exchanges like the American Stock Exchange and the Pacific Stock Exchange. Years ago, all of the trading was done through the traditional exchanges (like the NYSE, American and Pacific Exchanges) but now almost all of the trading is done through the Nasdaq, which uses ECNs and thousands of other firms with access to the Nasdaq to facilitate trading.

Here's an example of one of the many ways that the stock market works:

You open an account with E*Trade. You send E*Trade a check for $1,000. E*Trade deposits the check into a trading account that is listed under your name. You log onto E*Trade and place an order to buy 100 shares of a stock in Company A, which is currently trading at $5. E*Trade uses it's network to tell the Nasdaq and all of it's related networks that there is demand for 100 shares of Company A's stock. The Nasdaq finds someone who is willing to sell 100 shares of Company A and, instantaneously, they execute the trading of stock between you and the person selling the shares. The trade information is sent to a clearinghouse where the information is processed and the shares will now be registered to you. Basically, the clearinghouse will designate 100 shares of Company A to E*Trade and E*Trade will designate those 100 shares as yours. The actual stock certificates are typically held "in street name" and never really need to exchange hands (although you could request that the stock certificates be transferred to your name).

In a nutshell, that's how the stock market works. The stock market is really just like any other marketplace - it facilitates the exchange of goods between interested parties and works to reduce distribution costs and set prices.

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They are bought and sold in a market, just like apples & pears.
Once upon a time there were just stockjobbers (stallholders) and stockbrokers (wholesalers) and clients (shoppers)
It's really just the same now except most markets operate two systems. One is called market driven (like the old system where jobbers, now Market Makers made the prices) and the other is called order driven (where orders from clients, via brokers,establish the price)

Picture a stock as you owning a brick in the corporate headquarters. Your share (brick) is part ownership in that company. As owner, you get the right to vote on the board of directors, attend the annual shareholder's meeting, and have access to the company's financial statements.

As a company increases in value, and the demand for parts of the company increases, the price someone is willing to pay for your brick increases - thus your stock value goes up.

If your company decreases in value - buyers lower the price they are willing to buy the brick, and your price goes down.

The process of buying and selling your bricks is called "trading." Through trading, you offer your brick at a certain price, and then come to agreement with a buyer to pay you that much, and then he gets the brick. The same way that you buy the brick - you put out the price you are willing to pay, and someone that is willing to sell at that price is found, and you buy the brick from them.

Trading is the process brick broker dealers help you with - to get your buy/sell to the exchange (matching the buyers and sellers). For this, if the firm sells you one of the bricks they own - they receive a markup, and if they act as broker only on the deal - they receive commission.

If your company goes out of business - then you are left with a worthless brick.

It all starts when a company wants to raise money to invest in something they think will be profitable. The company sales stock to generate money. This is essentially selling a piece of ownership in the company and sometimes it carries a promise of getting a split of the profits when there are profits to split. Stocks are also called "equity" because the owner of the stock has equity or part ownership of the company. When a company is formed or incorporated it sets up a certain amount of stock which is worth about as much as the paper it is printed on--stock in its infancy carries no real value outside of the company. When a company is large enought they usually do an initial public offering, which is made of so many shares of stock at a predetermined price like $15 a share. People who invest in the stock market usually read the Wall Street Journal looking for initial public offerings or IPO's. At the moment the stock is sold to a shareholder during the IPO it is worth its selling price of $15 a share. Now at this point you can turn around and sell it for $15 dollars to someone else and then go buy a loaf of bread if someone is willing to pay you $15 dollars for it. The stock has now gone from being held by a few investors and owners of the company (or closely held) who would have a hard time selling it to being publicly held by thousands of owners who could sell it more easily because it is now being traded through stock exchanges such as the New York Stock Exchange or via the NASDAQ. Soon after trading hands a few times the people buying the stock now determine the value of the stock by what they are willing to pay for it. Sometimes the price of a stock that sold for $15 a share at its initial public offering will drop like a rock. Other times it will skyrocket. The value of the stock is set by the trading volume. Sometimes the value of a share of stock is determined by crazes such as the internet which tends to drive the price up quickly but the price may also fall just as quickly when the craze looses it "newness". More often than not the price of stock is set by how much profit the owner will receive or dividend or by the company's current earnings and their prospects for future earnings. A company with little hope for the future will be frowned upon by the people wanting to buy their stock and the buyer will not pay very much for it (its price usually doesn't drop to $0 right away as there are optimists and opportunists who will take a chance on disfavored stocks and will keep the price from falling to nothingness over night). It's just like trading baseball cards. When stock is traded on the open market the only reason it is worth so much is because there is someone out there willing to pay that much for it. No magic no mystery.

well you just cannot buy and sell to someone. Thats where the brokers and fees comes in ;-)

The simple rules to know.
You've heard of the cliche "buy low sell high" of course
but, the truth behind that is it's all about Supply and Demand,
that is what adds "value" a stock at least in a tangible sense that everybody can understand - price change.

read read and read more. start with basic questions on the internet and once you start you'll be led from one q/a to the next q/a.

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