How does the stock market work?

A stock market works on the basic principles of demand and supply. The key players are the buyers and sellers who determine stock prices through their trading behavior and the brokers who facilitate stock trades. Understanding how a stock market works is the first step to understanding how to invest in the stock market for financial gain. A stock, also known by the terms share and equity, represents ownership in a company. When companies want to expand their business and require capital to do so, they often turn to putting up parts of the company for sale to the public and asking them to buy a "share" of the company. Thus all the people who hold shares in a company, collectively the shareholders, are part owners and receive a percentage of the company's earnings in the form of dividends. Therefore, stock is an investment tool for the shareholders and a financing tool for the company. A stock market works like an auction house since stocks are sold to the highest bidder. Buyers place bids on stocks and sellers sell the stock around the current share price. The stock is sold to the highest bidder. The price of stock is determined by the fluctuations between demand and supply. Generally, a company that is doing well economically will see a higher demand for its stock than a company in financial trouble. The same can be said of the economy: a recessionary economy will see lower demand while a healthy booming economy will see a high demand for stock investment.

You will not be joining the stock market. What your company is offering you is chance to buy their stock. Wall-Mart does the same thing for their workers. This makes you a part owner in the company. The reasoning behind this is simple, being that you own part of the company you will do your best at work because that helps the company make money. Which in turn makes you more money. It also cuts down on office pilfering, they would be stealing from you so you would be more likely to turn in someone you seen stealing.

When you buy a share of stock, you are part owner of that company. It is your company - it belongs to you. Choose a company that has steady earnings each year instead of losses. If your company has very little long term debt, it will likely NOT get into financial trouble. As time passes and the company earns money, it is your money. The board of directors may deliver some or all of that profit directly to you, called a dividend. Or they may reinvest some or all of it in improving or growing the company. That way, your share of stock earns more money the second year than the first. That share of stock will become more valuable and its price will increase. ----- ----- ----- If you allow the company to earn money over time, that is investing. If you save a portion of your income each payday and invest in stock, over the course of several decades you can grow very wealthy indeed. It is like hiring someone to go to work and earn money for you, and then using that money to hire more workers. Your money grows geometrically. If you buy stock hoping that you can sell it for a quick profit because of the daily (or monthly) swings in price, then you are not investing. That is gambling and on a large scale.