How Does the Stock Market Work?

 

How Does the Stock Market Work? 

in this article we're going to take a

beginner's look into how the stock

market actually works and answer some of

the common questions that people have

when investing for the first time i'll

also tell you more about a special

report that i put together with today's

sponsor the motley fool that report is

available exclusively at fool.com

arvabell it's totally free and it's the

only place where you'll be able to get a

list of the top five stocks that i'm

watching because i won't be talking

about them anywhere else on this channel

so first what is a stock you can think

of stock like ownership of a company

divided into a lot of tiny little pieces

a stock is one of those pieces when you

buy a share of a company you own a tiny

piece of that company but we are talking

tiny a company like amazon for example

could have hundreds of millions of

shares available as a company improves

or demand for that company's stock

increases the price will go up if demand

decreases or the company is doing poorly

the stock price will go down but you

can't buy any company's stock that

exists in the world for a company's

stock to be available for people like

you and me to buy the company has to go

through something called an ipo or an

initial public offering this is

basically just a process that involves

making sure that a company is legitimate

raising money from investors and

deciding what that company is worth once

a company goes through an ipo

successfully they get a ticker symbol or

that series of letters that represents

that company on the stock market and

then it's available for the public to

buy okay so that's a stock but what is

the stock market and what do people mean

when they say that the stock market is

going up or down when we say the stock

market it can refer to a couple of

things it may be referring to this whole

ecosystem of the stocks the stock

exchanges and the people buying and

selling these stocks but when we say

that the stock market is going up or

down usually what is being referred to

is actually a stock market index if

you've ever heard anyone mention the s p

500 or the dow jones those are both

stock market indexes it's hard to track

every single stock that's available on

these stock exchanges so some of these

companies or different sectors of the

stock market are grouped together in an

index the performance of these companies

is averaged together and they're used to

get an idea of what the stock market is

doing as a whole when you hear people

say the stock market is up or down that

really means that one of these stock

market indexes has gone up or down that

just means that the prices of the stocks

within that index have on average

increased or decreased have you ever

heard the phrase buy low sell high

that's how you make money in the stock

market the goal is to sell stocks for

more than you bought them for exactly

like how you would flip items at a

garage sale but there's never a

guarantee that the price of these stocks

that you bought will go up there is

always a chance that they could go down

after you buy a stock it could be

minutes days weeks or even years before

you decide to sell it if you make money

when you sell your stock that's what we

call a gain if you lose money when you

sell a stock that's what we call a loss

those are the basics of what goes on in

the stock market but we've still left a

couple of questions unanswered when

you're investing who are you buying from

or selling to and what happens if

there's no one to buy your stock to

oversimplify it in a way that's easy to

understand when you sell a stock or

essentially when you hit that sell

button you are selling it to another

individual or another party that wants

to buy this stock for that same price if

you sell and no one wants to buy at that

price then your order just won't be

filled at that price depending on what

order type you used when you were

selling that order could be cancelled it

could just be placed on hold until

someone is willing to pay that price

that you specified or it could be filled

at the next available price if you're

not sure how order types work or how

that affects the buying and selling of

stocks i would definitely recommend

going and watching the order types video

on this channel that will explain how

that works but what happens if there are

actually just no buyers for a stock

usually this only happens with stocks

that have very very low volume or in

other words very few people trading it

these stocks usually aren't even

available on major stock exchanges like

the new york stock exchange plus for

larger companies that are more popular

and that have more people trading it or

a higher trading volume that's when

market makers start getting involved

market makers are just an in-between

party that buys and sells stocks from

traders to make sure that the market

stays liquid and that those stocks keep

moving this is to make sure that there

are buyers and sellers for those major

companies on those major stock exchanges

now this doesn't always mean that

they'll give you a good price for the

stock they're just there to make sure

that it keeps moving along they make a

tiny commission off of each transaction

called the spread so they are trying to

keep those stocks moving but they are

also trying to make a small profit along

the way once you're ready to invest

where do you actually go to buy stocks

like you can't just call up jeff bezos

and ask him if you can buy amazon stock

so luckily for just your regular stocks

there isn't any formal process for

becoming an investor you just need to

sign up for a brokerage app or a

brokerage account and you'll be able to

get started from there there are a ton

of different options to choose from but

once you do sign up with any of these

brokerages you'll then have access to

start buying and selling stocks some of

these platforms are better for longer

term investing some are better for day

trading some have extra features like

pre-built portfolios or credit cards or

access to financial advisors it just

takes a little research and sometimes

testing out a couple of these apps to

see which one works best for you but for

the most part a lot of these apps are

pretty similar to each other so once you

learn how to use one of them you'll have

an easier time learning others in the

future so you're signed up for a

brokerage you know what a stock is but

how do you actually find the stocks that

you want to invest in this is going to

depend a lot on what your goals actually

are with investing do you want stocks

that are higher growth do you want

trendier stocks do you want to invest in

a couple of great companies  that are

established and hold those for the long

term do you want to go after stocks that

pay you a little extra in dividends for

you holding their stocks or do you want

to skip stocks completely and go with

etfs once you answer some of these

questions and you narrow down the types

of companies and the types of stocks

that you actually want to look into

finding the good ones comes down to

learning how to research them the motley

fools website is actually a great place

to start doing some of your research

their website has a ton of information

and articles that anyone can start their

research with in addition to that they

also offer a stock picking service

that's called the motley fool stock

advisor the motley fools investing

philosophy is that investing in great

companies for the long term is the most

effective path to creating wealth so if

that is your investing philosophy as

well then motley fool's stock advisor

may be a good place for you to start

finding some of those first stocks i'm

currently looking at five companies that

i think have a good chance to be big

winners and see a lot of growth over the

next five to ten years so i've partnered

with motley fool who is today's video

sponsor to put those together in a

special report it's totally free all you

have to do is go to full.com

arvabell and you can get access to that

list it's free and it'll be delivered

right to your inbox and that's the only

place that you'll find it because like i

said earlier i won't be mentioning them

in any of my videos on this channel and

when you sign up to get that report

you'll also get a special offer for new

members of the motley full stock advisor

motley fool stock advisor is a

subscription stock picking service where

members gain access to their library of

expert stock  recommendations which are

aimed at multiplying your net worth

stock advisor recommends two brand new

stocks to its members each month sent

directly to their inbox why should you

trust the picks from the team at stock

advisor well their average stock pick

has returned over 500 as of when i'm

recording this and that's beating the

market by almost five times again you

can visit fool.com arvabelle or check

that link in the description to get

access to that free report and check out

motleyful stock advisor so as far as the

process to actually start researching

these stocks what i'll usually do is

start by googling the company name that

i'm interested in and put investor

relations after that that company's

website will usually have a page set up

specifically for investors and on this

page they'll have information about the

company as well as any reports that come

out quarterly or yearly so that you can

have a good understanding of what is

actually going on internally and

financially with that company usually

they'll also include any other

information that indicates how a company

is performing or any current projects

that they're working on or future goals

this can definitely be  a lot of

information to look at but there are a

ton of books on investing and a google

search goes a long way when trying to

figure out what these different metrics

mean after that i'll go and research the

company on different websites like the

motley fool if i want to see any other

information or news articles or things

like the company rating or ceo rating or

things that wouldn't be included on that

company's own report page for me it then

helps to make myself a little

spreadsheet with all of the different

companies i'm looking at the current

prices of their stocks and any other

information that i feel is important

maybe even some of the pros and cons of

some of these companies once i have all

of those listed out i'll start to narrow

it down to the ones that i'm actually

interested in investing in hopefully

this video gave you a little bit of

insight into how the stock market

actually works and what goes into

starting to pick some of your first

stocks i definitely recommend picking up

a book or two on investing and doing a

lot of research on google and youtube

and really takes some time to get

familiar with what to look for in

different companies stocks and remember

you can also get access to that free

report of the five stocks that i'm

watching delivered straight to your

inbox by going to fool.com arvabell