What You Need To Know About The Stock Market - And How To Make Money From It

Posted by User Contributed

May 30, 2008

“How Does The Stock Market Work” - its a common question and one that only a couple of websites actually provide an answer for. The challenge is in answering the question, accordingly the question really involves how the stock market works and how to make money at it.

In it easiest to describe form, a stock market is literally a market that sells stocks. Seem too easy? Think about it. At any market, you have buyers and you have sellers. Depending on the mood of the buyers, they may be willing to pay a bit more just to get a piece of whatever the sellers are selling. On the other hand, sellers may either hold out for a higher price, or want to literally give a product away just to get rid of it.

The stock market works in a similar way.

Lets say that you are a buyer of old records. You love the sound of classic rock on vinyl. So you go to a market where people are willing to sell a bit of their collection for a price. You spot the Beatles “Butcher Album” cover. You want it. The seller wants $2000 for it. As a buyer, you need to figure out what the future value of that record is going to be. Will it be worth $3000 in a few years, or remain the same. Why is the seller trying to get rid of such a prized possession. Its possible he is motivated to sell because he needs some money quickly to buy a car. After some discussion, you and the seller agree on a price, which may be above or below the $2000 price tag.

Lets go to Wall Street now. You want shares of Yahoo! because you feel that Microsoft will eventually win control of the company, thus will get a higher price that it trades at today. The seller knows this, and so do millions of other potential buyers. Nevertheless, the seller wants to sell at the highest price he can get, so that he can take advantage of the latest hot penny stock before it skyrockets. You’re willing to pay $25/share, the seller wants $26. Until the two of you settle on a price, nothing happens. However, he might be willing to accept $25.50 and if you’re willing to pay that amount, shares are exchanged.

Then bad news hits as Steve Ballmer and friends decide that they want to buy another company instead of Yahoo!. Suddenly, everyone wants to sell their Yahoo! shares. Now the buyers are in control and can pick up shares at a discount. Perhaps a savvy investor, lets call him Carl, is willing to buy shares at $23. He gets a lot of takers, which drives the value of the shares down to $23 a share. Now you have to choose, do you sell your shares now and take a loss, or hold on and hope for better days?

That is how the stock market works in its simplest terms.

The real question you have is: how can you make money in the stock market? www.1source4stocks.com can show you how.

Share and Enjoy: These icons link to social bookmarking sites where readers can share and discover new web pages.