Yesterday, we looked at the main piece of the stock market: stock. Today, we’ll look closer at the stock market itself. I’m sure you’re familiar with what a market is, but just in case, it’s basically a place where people come together to buy and sell goods. So a stock market is…put the two pieces together!
Let’s start of by going back to our illustration from yesterday. If you remember, you are in the process of selling your clothing business at the mall called I Sell Clothes.
Did any of your customers ever tell you that’s a strange name? Hey, it’s your store!
Instead of getting one person to buy your store for $200,000, there were 20 different people who each bought a share of ownership for $10,000. But what happens if a few months into it, one of these 20 owners decides he doesn’t want to own part of your store anymore. He wants to sell his ownership share. What are his options?
He could take out a classified ad in the newspaper or throw it up on eBay (he may need some Pepto-Bismol if he’s throwing up stuff), but all he’s trying to do is find someone who will buy his share. What he really needs is a central place where he could sell this…
Are you connecting the dots yet?
Enter the stock market. It’s a central location where people come together to buy and sell their shares in various companies (also known as a stock exchange). The New York Stock Exchange (NYSE) is an example of a stock market. But since this is where the exchanges actually take place, do you have to physically go to New York to buy and sell stock? Of course not.
This is why we have middlemen known as stock brokers. They can execute the buying and selling of the stocks for you. There are traditional brokers like Merrill Lynch, Morgan Stanley, and Charles Schwab, but there are also online brokers like E-Trade or TD AmeriTrade.
But how are the prices determined? Excellent question. Come back tomorrow…
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