The Stock Market

In some countries, most businesses are owned and operated by the government. But in the United States, most businesses are privately owned and operated.

Why do people want to start their own business?

There are many reasons, but the main reason is that business owners hope to earn a profit. Profit is the money that is left over after all of the expenses have been paid. If a business is successful, profits can make the owners rich!

Where do people get the money to start their own business?

If a business is going to be small, people can borrow money from a bank. But if a business is going to be big, LOTS of money is needed! And that’s where stocks and the stock market come in.

• In order to raise LOTS of money for a BIG business, the owners will sell shares of ownership in the business to investors. These shares are also called stock When the investors buy stocks, the business has more money to grow.

Investors who buy stock are called stockholders.

Why do investors buy stocks in a business?

There are two main ways to make money buying stocks:

1. If the business is successful (profitable), stockholders can get a percentage of the profits. These are called dividends.

2) Stockholders can buy or sell their stock any time. If the business is successful, the value/price of the stock will go up. Investors can earn money by selling their stocks at a higher price than what they paid for it.

“Buy low, sell high”= GOOD!

Why is the stock market a risky investment?

There are two main ways to lose money in the stock market:

1) Businesses are NOT always successful. When businesses perform poorly, there are NO profits (dividends) for investors.

2) If the business performs poorly, stock prices will go down. Investors may lose money if they have to sell their shares for less than what they paid.

“Buy high, sell low” = BAD

How do people like ourselves invest in the stock market?

The place where stocks are bought & sold is called the stock market. The New York Stock Exchange is the biggest stock market in the world.

Ordinary people like ourselves, cannot “shop” at a stock market. In order to buy and sell stocks, we have to go through a brokerage house or a stock broker (someone who buys & sells stocks).

How is the price of stock determined?

When a business offers its stock for the 1st time, it will set the price of the stock. After that, the price of the stock goes up or down depending on the demand for it. Demand for stock is affected by the profitability of the business, AND investor confidence.