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If you watch the news or read a newspaper, you’re
sure to have heard of the stock market. You read
that shares in Walmart showed a 2% gain, or the Dow
Jones Industrial Average fell a whopping 400 points
yesterday, but may you don’t understand what it’s
all about. If so, then you’re like many of your
fellow Americans. There’s nothing easy about
understanding the workings of the stock market.
However, if you take the time to learn what there is
to know, you may just wind up making a lot of money
in investments.
To start with, let’s pretend that you own a
business. Although you’ve done quite well since you
opened your doors three years back, you’re now in a
position where you need to expand your facilities.
In addition, you’ve come up with an idea for a great
new product, and you need capital in order to have
your idea developed and marketed. That’s the time
when you might decide to sell shares of your
business to investors in order to raise the cash you
will need for your expansions.
The stock market is where you’ll sell your stock. In
over-simplified terms, the stock market is nothing
but a huge store where people will buy and sell
shares in your business. The good thing about this
“store” is that investors don’t have to visit New
York in order to shop there. People have access to
stockbrokers, the salespeople so to speak, both
locally and online. This stockbroker will take an
investor’s order and contact a person he employs to
be his floor broker at the New York Stock Exchange
(NYSE) or at another stock exchange. Here in the
21st century, more and more of the process is being
handled by computers, though.
After receiving an order, the floor broker goes to
the appropriate place in the stock market where he
can place the order. He then reports back to the
local broker that the deal has been made, and the
investor now owns a small piece of the action in
your business. The investor is now hoping that he’ll
make a profit from investing in you. If your
expanded business starts making a lot more money,
the price of your shares will rise, and your
investors will make a profit. If your new product
idea bombs and you lose your shirt, the investor
stands to lose his investment. That’s a gamble that
investors take.
You may decide that you want to take advantage of
possible stock market gains by purchasing stock in
other companies yourself. Your transactions will
work the same way. You’ve heard about a new business
called “Apples, Apples” that has just started
issuing stock. The concept they are selling sounds
great to you, and you’re sure they’re going to make
a lot of money. You want to cash in on the action,
so you call your broker, or visit a brokerage
online, to place your order. After that, you become
part owner of the new business, and hopefully stock
prices will reflect the faith you have placed in
them.
If you’ve ever gotten to visit the trading floor at
the NYSE, you know that the entire trading process
is like operating inside of a three-ring circus –
but with more than three rings. The stock market
trading floor is as large as half of a football
field. It is divided into 22 horseshoe-shaped
trading posts, each of which has a large counter and
about a dozen clerks working at it to process
orders. During trading hours, the floor is a
constant whirl of activity as over 2,000,000 trades
are made each and every trading day. |
