A Stock Market is essentially a virtual marketplace where investors come together to buy and sell shares, or stocks, in public organizations.
When an investor purchases a stock, they become a part-owner.
They essentially buy their own share in the organization whilst providing it with the capital to put into the business.
There are Stock Markets spread across the world, with some of the biggest ones located in New York (New York Stock Exchange), London (London Stock Exchange), Shanghai (Shanghai Stock Exchange), Hong Kong (Hong Kong Stock Exchange), Tokyo (Japan Exchange Group).
However, it all depends on where you’re from.
Usually, your country will have an exchange dedicated to trading stocks. But more on that later on.
For now, for a full list of Stock Markets worldwide, please click here.
You can think of it this way.
Every company has its owner.
For small companies, this usually means one single owner, whilst large companies that deal with Stocks have more owners.
Now, why would one want their company to have more owners?
And in order to expand, companies need MONEY.
Money from people (or investors if you like) just like you, me, my girlfriend, my wife, my dog, and anyone who has the capital to invest really.
Without access to money from investors, businesses would be more constrained in the projects they can take on and therefore unable to truly capitalise on the equity in their company.
Now, once you invest in a company it can be used for a variety of things such as inventing new products, building new factories, expanding to new countries, or hiring more people.
With that being said, in the grand scheme of things, you don’t really care how the companies use your money as long as it makes you profitable in the end, right?
To be an investor, you must be a believer in a better tomorrow…Benjamin Graham
The motto of every Stock trader.
The truth is, trading Stocks is a long-term game. You ain’t gonna make huge profits or become a millionaire overnight.
But if you are patient and invest wisely, when the company you invested in makes money, you profit too.
And so does everyone else that owns a piece of that company.
Okay so now that you know that the stock market is a place where buyers and sellers negotiate prices and make trades, we can get to the technical part.
Let’s say a company decides to go public and list its shares on the Stock Market. This is called an initial public offering (IPO).
Investors can buy and sell their shares to others, and the Stock market will analyze its performance and set prices depending on the supply and demand of every Stock.
For trades to happen, a buyer and seller must agree on the amount they are willing to pay or sell their share (or Stock) for.
This all happens online with prices often automatically calculated, unlike traditional marketplaces where you’d need to be physically present to make bids.
Let’s take Apple.
Apple is listed on the Stock market and is worth $731,000,000,000.
That’s billion, by the way.
$731 Billion Dollars.
Now, let’s say you want to buy a share in Apple.
The good news is that it’s possible!
You can buy a share in Apple itself for as little as $123.99 per share.
So let’s say you go ahead and buy one share of Apple.
You’d probably feel like you’ve got the power.
YOU’RE A PART-OWNER OF APPLE, NOTHING CAN STOP YOU NOW.
Well, let me stop you there.
To calculate how (small) your stakes at Apple are, you need to divide it into its market cap ($731 billion).
Or in another example, let’s say you are Bill Gates and you want to invest $7.84 billion into Apple shares.
That would make you an owner of 10% Apple shares.
Pretty straightforward, right?
And that’s it! You’ve completed the first lesson of Level 1! Well done.
In the next lesson, we will explore who participates in the Stock market.
Ready when you are!