Have you ever gone shopping with your family? People visit different types of markets to make purchases. You might have been to a grocery store or a farmers’ market to buy food. Perhaps you’ve gone to a mall to shop for clothes. Some people prefer supermarkets where they can find multiple items in one place.
All these markets are where people engage in buying and selling. You and your family are the buyers, while the market owners are the sellers. There’s another type of market that you might not be familiar with – the stock market!
In a stock market, people trade shares of companies, which are known as stocks. The companies listed on a stock market are publicly traded, meaning anyone can buy stocks and become a part-owner of the company. Imagine having a say in the next Disney movie or the next drink introduced by Starbucks! When individuals own stocks in a company, they have a voice in making important company decisions.
Many people are unaware that there are multiple stock markets! The most well-known stock markets in the United States are the New York Stock Exchange and the Nasdaq. Additionally, there are fourteen smaller stock markets where people can also buy and sell stocks.
This might come as a surprise if you’ve ever heard someone say, “The stock market is looking up!” This phrase might imply that there is only one stock market. However, when people talk about how “the stock market” is performing, they are referring to the overall performance of all stock markets. Stock market indexes measure this performance. You can easily find indexes, such as the Dow Jones, online. If stock prices are increasing, it indicates a strong stock market. Conversely, if stock prices are dropping, it suggests that the stock market is not performing well.
You may have heard stories about individuals making a fortune in the stock market. Many people invest in stocks with the hope of making money. However, making a profit in the stock market is challenging! To earn a profit, investors must sell their stocks at a higher price than what they initially paid. This is difficult because predicting when stock prices will rise and fall is often impossible.
Think of it this way: Imagine you purchased a basketball autographed by LeBron James for $100. If someone offered you $110 for it the next day, you could sell it and make a $10 profit. Alternatively, you could hold onto the basketball and sell it a few years later. Perhaps LeBron’s career continues to thrive, and the value of the basketball increases to $200. By waiting to sell, you would have made a $100 profit! On the other hand, what if the basketball’s value decreases? What if someone is only willing to pay $75 for the autographed ball in a few years? In that case, waiting to sell would result in a loss. There is no way to accurately predict the future value of the basketball. This uncertainty is the risk that investors face when buying and selling stocks.
Most individuals who aim to profit from the stock market hire a professional called a broker. Brokers make predictions about the opportune times to buy and sell stocks in order to maximize profits. Can brokers predict the future? Absolutely not! Instead, brokers closely monitor the stock market and become knowledgeable about when prices are likely to rise or fall.
Stock prices are determined through agreement between buyers and sellers. Therefore, official stock prices reflect the perceived value of a company by investors. Various factors can influence this, such as media coverage, natural disasters, politics, and social issues. For example, a company that has been in the news for selling defective products would experience a decrease in its stock price. Conversely, a business that has been endorsed by a popular celebrity or political figure may see an increase in its stock price.
Are you prepared to make a fortune in the stock market? Before you begin, keep in mind that investing in stocks carries significant risks. Many individuals end up losing money when the value of their stocks declines. Stock market crashes occur when the prices of all stocks sharply decrease simultaneously. During these crashes, investors and businesses suffer substantial financial losses. In fact, stock market crashes can even lead to major economic disasters like the Great Depression.
Do you believe you can predict the rises and falls in the stock market? Do you dream of owning shares in your favorite company? While you may start setting financial goals today, make sure you acquire as much knowledge as possible before making any investments!
Try It Out
Remember to seek assistance from a friend or family member for these activities!
- Interested in learning more about the stock market? Read additional information from The Mint. Afterwards, write a paragraph explaining your understanding of the stock market. Share your writing with a friend or family member.
- Trading on the stock market is risky! Explore information about the Wall Street Crash of 1929. Summarize what you learn for a friend or family member. What was the Wall Street Crash of 1929? What caused this event? How did it impact the United States and the rest of the world?
- Would you like to eventually sell stocks of your own business? Collaborate with a friend or family member to develop a business plan. What will make your business unique? What factors would attract people to buy stocks in it?
Wonder Sources
- https://www.forbes.com/sites/mikepatton/2015/04/28/five-basics-you-should-definitely-know-about-the-stock-market/#7393e2307efa (accessed 4 Feb., 2019)
- https://www.nasdaq.com/article/what-is-the-stock-market-and-how-does-it-work-cm895748 (accessed 4 Feb., 2019)
- https://www.nerdwallet.com/blog/investing/what-is-the-stock-market/ (accessed 4 Feb., 2019)
- https://www.thestreet.com/investing/stocks/how-do-stocks-work-14726850 (accessed 4 Feb., 2019)
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