I’m sure you’ve heard or seen people on the news talking about how “the stock market was down 2% today” or how “trading was at an all-time high today,” but you’ve never really known what that stuff means.  Hopefully we can clear that up for you!

(NOTE: As we walk through this, there will be several terms we will cover that you may need to look up in our glossary to make sure we’re on the same page.)

Let’s start by examining the main component of the stock market: stock.  Stock is basically giving someone part ownership in a company.  Here’s an example…

You open a clothing business at the mall called I Sell Clothes.  Creative huh?!  To open the business, it takes you around $100,000 to buy the products (clothes), advertising, hire employees, and pay the mall rent to let you use their space.  Let’s say you ran the business for a few years, and then decided you wanted to sell the store.  Once you determined how much it is worth, you would list it on Craiglist, eBay, or wherever you thought you could find someone to buy it.

Suppose you wanted to sell it for $200,000 (doubling your money) but you can’t find anyone who has that kind of money to buy your business.  What if instead you found 20 different people who said they wanted to buy a share of your business for $10,000 each?  Now instead of one person owning the company (you), there will be 20 different individuals who own the company.  This means that they share all the decision-making regarding the business and also share the profits (or losses) equally among all the owners. 

Now take this example and multiply it out.  Instead of 20 owners, imagine millions of different owners each holding different size pieces of the pie.  One owner may have only one share and another owner may have 10,000 shares. 

At its core, this is what stock is.  It is part ownership of a company.

Tomorrow, we’ll talk more about how the stock market actually works…

Related posts:

1. How Does The Stock Market Work? (Part 2)
2. How Does The Stock Market Work? (Part 3)
3. How Do I Buy Stock?
4. What’s The Difference Between A “Bull Market” And A “Bear Market”?
5. How Do I Know If A Work-From-Home Opportunity Is Legit?